< Back to H.R. 1776 (109th Congress, 2005–2006)

Text of the Social Security Personal Savings Guarantee and Prosperity Act of 2005

This bill was introduced on April 21, 2005, in a previous session of Congress, but was not enacted. The text of the bill below is as of Apr 21, 2005 (Introduced).

Source: GPO

I

109th CONGRESS

1st Session

H. R. 1776

IN THE HOUSE OF REPRESENTATIVES

April 21, 2005

(for himself, Mr. Feeney, Mr. Hensarling, Mr. McHenry, Mr. Barrett of South Carolina, Mr. Franks of Arizona, and Mrs. Northup) introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committees on the Budget and Rules, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

A BILL

To reform Social Security by establishing a Personal Social Security Savings Program and to provide new limitations on the Federal Budget.

1.

Short title and table of contents

(a)

Short title

This Act may be cited as the Social Security Personal Savings Guarantee and Prosperity Act of 2005.

(b)

Table of contents

The table of contents is as follows:

Sec. 1. Short title and table of contents

Title I—Personal Social Security Investment Program

Sec. 101. Establishment of Personal Social Security Investment Program

Part B—Personal Social Security Savings Program

Sec. 251. Definitions

Sec. 252. Social Security Personal Savings Fund

Sec. 253. Participation in Program

Sec. 254. Personal social security savings accounts

Sec. 255. Tier I Investment Fund

Sec. 256. Tier II Investment Fund

Sec. 257. Tier III Investment Options

Sec. 258. Personal social security savings annuity and other distributions

Sec. 259. Guarantee of promised benefits

Sec. 260. Personal Social Security Savings Board

Sec. 261. Executive Director

Sec. 102. Monthly insurance benefits for participating individuals

Sec. 103. General fund transfers to the Federal Old-Age and Survivors Insurance Trust Fund

Sec. 104. Tax treatment of accounts

Sec. 105. Self-Liquidating Social Security Transition Fund

Sec. 106. Budgetary treatment of social security

Sec. 107. Dedication of budget surpluses to saving social security

Sec. 108. Accounting for the Old-Age, Survivors, and Disability Insurance Program and the Personal Social Security Savings Program

Sec. 109. Reduction of FICA rates resulting from Personal Social Security Savings Program

Title II—Putting a lid on the Federal budget

Subtitle A—Spending safeguards on the growth of entitlements and mandatories

Sec. 201. Spending caps on growth of entitlements and mandatories

Sec. 202. Exempt programs and activities

Sec. 203. Exceptions, limitations, and special rules

Sec. 204. Point of order

Sec. 205. Technical and conforming amendments

Subtitle B—Discretionary spending limits

Sec. 211. Enforcing discretionary spending limits

I

Personal Social Security Investment Program

101.

Establishment of Personal Social Security Investment Program

(a)

In general

Title II of the Social Security Act is amended—

(1)

by inserting before section 201 the following:

A

Insurance benefits

; and

(2)

by adding at the end the following new part:

B

Personal Social Security Savings Program

251.

Definitions

For purposes of this part—

(1)

Participating individual

The term participating individual has the meaning provided in section 253(a).

(2)

Board

The term Board means the Personal Social Security Savings Board established under section 260.

(3)

Executive Director

The term Executive Director means the Executive Director appointed under section 261.

(4)

Personal social security savings account

The term personal social security savings account means an account established under section 254(a).

(5)

Personal social security savings annuity

The term personal social security savings annuity means an annuity approved by the Board under section 258(b)(3).

(6)

Savings Fund

The term Savings Fund means the Social Security Personal Savings Fund established under section 252.

(7)

Tier I Investment Fund

The term Tier I Investment Fund means the trust fund created under section 255.

(8)

Tier II Investment Fund

The term Tier II Investment Fund means the trust fund created under section 256.

(9)

Tier III Investment Option

The term Tier III Investment Option means an investment option which is—

(A)

offered by an eligible entity certified by the Board under section 257(b); and

(B)

approved by the Board under section 257(c).

252.

Social Security Personal Savings Fund

(a)

Establishment of Savings Fund

(1)

Establishment

There is established in the Treasury of the United States a trust fund to be known as the Social Security Personal Savings Fund.

(2)

Amounts in Fund

The Savings Fund shall consist of—

(A)

all amounts transferred to or deposited into the Savings Fund under subsection (b), increased by the total net earnings from investments of sums in the Savings Fund attributable to such transferred or deposited amounts, and reduced by the total net losses from investments of such sums, and

(B)

the reserves held in the Annuity Reserves Account established under section 258(b)(3), increased by the total net earnings from investments of such reserves, and reduced by the total net losses from investments of such reserves.

(3)

Trustees

The Board shall serve as trustees of the Savings Fund.

(4)

Budget authority; appropriation

This part constitutes budget authority in advance of appropriations Acts and represents the obligation of the Board to provide for the payment of amounts provided under this part. The amounts held in the Savings Fund are appropriated and shall remain available without fiscal year limitation.

(b)

Deposits into Fund

(1)

In general

During each calendar year, the Secretary of the Treasury shall deposit into the Savings Fund, from amounts held in the Federal Old-Age and Survivors Insurance Trust Fund, a total amount equal, in the aggregate, to 100 percent of the redirected social security contribution for such calendar year of each individual who is a participating individual for such calendar year.

(2)

Transfers based on estimates

(A)

In general

The amounts deposited pursuant to paragraph (1) shall be transferred in at least weekly payments from the Federal Old-Age and Survivors Insurance Trust Fund to the Savings Fund.

(B)

Determination of amounts

The amounts transferred under subparagraph (A) shall be determined on the basis of estimates, made by the Commissioner of Social Security and certified to the Secretary of the Treasury, of the wages paid to, and self-employment income derived by, participating individuals. Proper adjustments shall be made in amounts subsequently transferred to the extent prior estimates were in excess of or were less than actual amounts transferred.

(3)

Redirected social security contributions

For purposes of paragraph (1)——

(A)

In general

The term redirected social security contributions means, with respect to an individual for a calendar year, the sum of—

(i)

the product derived by multiplying—

(I)

the sum of the total wages paid to, and self-employment income derived by, such individual during such calendar year, to the extent such total wages and self-employment income do not exceed the base amount for such calendar year; by

(II)

the applicable base percentage for the calendar year; and

(ii)

the product derived by multiplying—

(I)

the sum of the total wages paid to, and self-employment income derived by, such individual during such calendar year, to the extent such total wages and self-employment income exceed the base amount (taking into account the limits imposed by the contribution and benefit base under section 230); by

(II)

the applicable supplemental percentage for the calendar year.

(B)

Base amount

For purposes of subparagraph (A)—

(i)

Initial base amount

The base amount for calendar year 2006 is $10,000.

(ii)

Adjustments to base amount

The base amount for any calendar year after 2006 is the product derived by multiplying $10,000 by a fraction—

(I)

the numerator of which is the national average wage index (as defined in section 209(k)) for the first of the 2 preceding calendar years; and

(II)

the denominator of which is the national average wage index (as so defined) for 2004.

(C)

Applicable base percentage

For purposes of subparagraph (A), the applicable base percentage for a calendar year is—

(i)

for calendar years after 2005 and before 2016, 5 percent; and

(ii)

for calendar years after 2015, 10 percent.

(D)

Applicable supplemental percentage

For purposes of subparagraph (A), the applicable supplemental percentage for a calendar year is—

(i)

for calendar years after 2005 and before 2016, 2.5 percent; and

(ii)

for calendar years after 2015, 5 percent.

(c)

Availability

The sums in the Savings Fund are appropriated and shall remain available without fiscal year limitation—

(1)

to invest funds in the Tier I Investment Fund of the Savings Fund and the Tier II Investment Fund of the Savings Fund under sections 255 and 256, respectively;

(2)

to transfer into Tier III Investment Options under section 257;

(3)

to make distributions in accordance with section 258; and

(4)

to pay the administrative expenses of the Board in accordance with subsection (e).

(d)

Limitations on use of funds

(1)

In general

Sums in the Savings Fund credited to a participating individual’s personal social security savings account may not be used for, or diverted to, purposes other than for the exclusive benefit of the participating individual or the participating individual’s beneficiaries under this part.

(2)

Assignments

Sums in the Savings Fund may not be assigned or alienated and are not subject to execution, levy, attachment, garnishment, or other legal process.

(e)

Payment of administrative expenses

Administrative expenses incurred to carry out this part shall be paid out of net earnings in the Savings Fund in conjunction with the allocation of investment earnings and losses under section 254(c).

(f)

Limitation

The sums in the Savings Fund shall not be appropriated for any purpose other than the purposes specified in this part and may not be used for any other purpose.

253.

Participation in Program

(a)

Participating individual

For purposes of this part, the term participating individual means any individual—

(1)
(A)

who receives wages in any calendar year after December 31, 2005, on which there is imposed a tax under section 3101(a) of the Internal Revenue Code of 1986, or

(B)

who derives self-employment income for a taxable year beginning after December 31, 2005, on which there is imposed a tax under section 1401(a) of the Internal Revenue Code of 1986,

(2)

who is born on or after January 1, 1950, and

(3)

who has not filed an election to renounce such individual’s status as a participating individual under subsection (b) or has filed such an election and has subsequently filed an election to reinstate such individual’s status as a participating individual under subsection (c).

(b)

Renunciation of participation

(1)

In general

An individual—

(A)

who has not attained retirement age (as defined in section 216(l)(1)), and

(B)

with respect to whom no distribution has been made from amounts credited to the individual’s personal social security savings account for the purchase of a personal social security savings annuity,

may elect, in such form and manner as shall be prescribed in regulations of the Board, to renounce such individual’s status as a participating individual for purposes of this part. Upon completion of the procedures provided for under paragraph (2), any such individual who has made such an election shall not be treated as a participating individual under this part, effective as if such individual had never been a participating individual. The Board shall provide for immediate notification of such election to the Commissioner of Social Security, the Secretary of the Treasury, and the Executive Director.
(2)

Procedure

The Board shall prescribe by regulation procedures governing the termination of an individual's status as participating individual pursuant to an election under this subsection. Such procedures shall include—

(A)

prompt closing of the individual’s personal social security savings account established under section 254,

(B)

revocation of any benefit credit certificate assigned to the individual’s personal social security savings account under section 255, and

(C)

prompt transfer to the Federal Old-Age and Survivors Insurance Trust Fund as general receipts of any amount held in the Tier II Investment Fund of the Savings Fund or under a Tier III Investment Option pursuant to section 256 or 257 and credited to such individual’s personal social security savings account.

(c)

Reinstatement of participation

(1)

In general

Any individual who has filed an election under subsection (b) to renounce such individual's status as a participating individual under this part may elect, in such form and manner as shall be prescribed in regulations of the Board, to reinstate such status. Such regulations shall provide for regular, periodic opportunities for the filing of such an election. The Board shall provide for immediate notification to the Commissioner of Social Security, the Secretary of the Treasury, and the Executive Director of such election.

(2)

Effectiveness of reinstatement

An election under this subsection shall be effective with respect to wages earned, and self-employment income derived, on the earliest date on which the Board determines is practicable to make such election effective following the date of the filing of the election. The individual filing the election shall be treated as becoming a participating individual under this part on the effective date of the election as if such individual first met the requirements of subsection (a) on such date.

(3)

Irrevocability

An election under this subsection shall be irrevocable.

254.

Personal social security savings accounts

(a)

Establishment of publicly administered system of personal security savings accounts

As soon as practicable after the later of January 1, 2006, or the date on which an individual becomes a participating individual under this part, the Executive Director shall establish a personal social security savings account for such individual. Such account shall be the means by which amounts held in the Tier I Investment Fund and the Tier II Investment Fund of the Savings Fund under sections 255 and 256 and amounts held under Tier III Investment Options under section 257 are credited to such individual, under procedures which shall be established by the Board by regulation. Each account of a participating individual shall be identified to such participating individual by means of the participating individual’s social security account number.

(b)

Account balance

The balance in a participating individual’s account at any time is the sum of—

(1)

the balance in the Tier I Investment Fund of the Savings Fund credited to such participating individual prior to transfer of the credited amount to the Tier II Investment Fund of the Savings Fund; plus

(2)

the excess of—

(A)

all deposits in the Tier II Investment Fund of the Savings Fund credited to such participating individual’s personal social security savings account, subject to such increases and reductions as may result from allocations made to and reductions made in the account pursuant to subsection (c)(1); over

(B)

amounts paid out of the Tier II Investment Fund in connection with amounts credited to such participating individual’s personal social security savings account; plus

(3)

the excess of—

(A)

the deposits in the Tier III Investment Options credited to such participating individual’s personal social security savings account, subject to such increases and reductions as may result from amounts credited to, and reductions made in, the account pursuant to subsection (c)(2); over

(B)

amounts paid out of the Tier III Investment Options of such participating individual.

The calculation made under paragraph (3) shall be made separately for each Tier III Investment Option of the participating individual. The Board shall also hold for the participating individual any benefit credit certificate assigned to the participating individual’s personal social security savings account under section 255.
(c)

Allocation of earnings and losses

Pursuant to regulations which shall be prescribed by the Board, the Executive Director shall allocate to each personal social security savings account an amount equal to the net earnings and net losses from each investment of sums—

(1)

in the Tier I Investment Fund and the Tier II Investment Fund which are attributable to sums credited to such account reduced by an appropriate share of the administrative expenses paid out of the net earnings, as determined by the Executive Director; and

(2)

in the Tier III Investment Options which are attributable to sums credited to such account reduced by the administrative expenses paid out of the net earnings.

255.

Tier I Investment Fund

(a)

Establishment of Tier I Investment Fund

(1)

In general

The Savings Fund shall include a separate fund to be known as the Tier I Investment Fund.

(2)

Amounts in fund

The Tier I Investment Fund consists of all amounts derived from payments into the Fund under section 252(b) and remaining after investment of such amounts under subsection (b), including additional amounts derived as income from such investments.

(3)

Use of funds

The amounts held in the Fund are appropriated and shall remain available without fiscal year limitation—

(A)

to be held for investment on behalf of participating individuals under subsection (b),

(B)

to pay the administrative expenses related to the Fund, and

(C)

to make transfers from the Fund under subsection (c)(2).

(b)

Investment of Fund balance

For purposes of investment of the Tier I Investment Fund, the Board shall contract with appropriate professional asset managers, recordkeepers, and custodians selected for investment of amounts held in the Fund, so as to provide for investment of the balance of the Fund, in a manner providing broad diversification in accordance with regulations of the Board, in—

(1)

insurance contracts,

(2)

certificates of deposit, or

(3)

other instruments or obligations selected by such asset managers,

which return the amount invested and pay interest, at a specified rate or rates, on that amount during a specified period of time.
(c)

Separate crediting to personal social security savings accounts and transfers to the Tier II Investment Fund or to Tier III Investment Options

(1)

Crediting to accounts

(A)

In general

Subject to this paragraph, the Board shall provide for prompt, separate crediting, as soon as practicable, of the amounts deposited in the Tier I Investment Fund to the personal social security savings account of each participating individual with respect to the redirected social security contributions (as defined in section 252(b)(3)) of such participating individual. The Board shall include in such crediting, with respect to each such individual, any increases or decreases in such amounts so as to reflect the net returns and losses from investment of the balance of the Fund prior to such crediting. For purposes of determining such increases and decreases for each calendar year, the amounts deposited into the Fund in connection with such individual during such calendar year shall be deemed to have been deposited on June 30 of such year.

(B)

Treatment of married participating individuals

If the participating individual is married as of the end of the calendar year in which the amounts to be credited were deposited in the Tier I Investment Fund and the spouse is also a participating individual, the personal social security savings account of the participating individual and the personal social security savings account of his or her spouse shall each be credited with 50 percent of such amounts.

(2)

Transfers from the Tier I Investment Fund

In accordance with elections filed with the Board by a participating individual, any amount credited to the personal social security savings account of such participating individual under paragraph (1) shall be promptly transferred to the Tier II Investment Fund of the Savings Fund for investment in accordance with section 256 and, to the extent available under section 257, to Tier III Investment Options in accordance with section 257.

(d)

Treatment of amounts held in Tier I Investment Fund

Subject to this part—

(1)

until amounts deposited into the Tier I Investment Fund during any calendar year are credited to personal social security savings accounts, such amounts shall be treated as the unallocated property of all participating individuals with respect to whom amounts were deposited in the Fund during such year, jointly held in trust for such participating individuals in the Savings Fund, and

(2)

amounts deposited into the Fund which are credited to the personal social security savings account of a participating individual shall be treated as property of the participating individual, held in trust for such participating individual in the Savings Fund.

256.

Tier II Investment Fund

(a)

Establishment of Tier II Investment Fund

(1)

In general

The Savings Fund shall include a separate fund to be known as the Tier II Investment Fund.

(2)

Amounts in Fund

The Tier II Investment Fund consists of all amounts derived from payments into the Fund under section 255(c)(2) and remaining after investment of such amounts under subsection (b), including additional amounts derived as income from such investments.

(3)

Use of funds

The amounts held in the Fund are appropriated and shall remain available without fiscal year limitation—

(A)

to be held for investment under subsection (b),

(B)

to pay the administrative expenses related to the Fund, and

(C)

to make transfers to Tier III Investment Options under section 257 or to make payments under section 258.

(b)

Payments into Tier II Investment Fund

(1)

In general

Upon the crediting under section 252 to the personal social security savings account of a participating individual of any amount held in the Tier I Investment Fund for any calendar year, the Board shall transfer from the Tier I Investment Fund into the Tier II Investment Fund any amount so credited to such participating individual’s account which is not transferred to a Tier III Investment Option pursuant to an election under section 257(a).

(2)

Ongoing separate crediting

Subject to this paragraph, the Board shall provide for ongoing separate crediting to each participating individual’s personal social security savings account of the amounts deposited in the Tier II Investment Fund with respect to such participating individual, together with any increases or decreases therein so as to reflect the net returns and losses from investment thereof while held in the Fund.

(c)

Investment accounts

(1)

In general

For purposes of investment of the Tier II Investment Fund, the Board shall divide the Fund into 6 investment accounts. The Board shall contract with appropriate investment managers, recordkeepers, and custodians selected for investment of amounts held in each investment account. Such accounts shall consist of—

(A)

a Lifecycle Investment Account,

(B)

a Government Securities Investment Account,

(C)

a Fixed Income Investment Account,

(D)

a Common Stock Index Investment Account,

(E)

a Small Capitalization Stock Index Investment Account, and

(F)

an International Stock Index Investment Account.

(2)

Election of investment options

(A)

Default investment account

Except as provided in an election in effect under subparagraph (B), amounts held in the Tier II Investment Fund shall be credited to the Lifecycle Investment Account.

(B)

Election of transfers between investment accounts

In any case in which a participating individual who has an amount in such individual’s personal social security savings account credited to any of the investment accounts in the Tier II Investment Fund files with the Secretary of the Treasury a written election under this subparagraph, not more frequently than annually and in accordance with regulations of the Board, the Secretary of the Treasury shall transfer the full amount so credited in such investment account from such investment account to any one of the other investment accounts in the Tier II Investment Fund (whichever is designated in such election).

(d)

Lifecyle Investment Account

(1)

In general

The investment manager, recordkeeper, and custodian selected for investment of amounts held in the Lifecyle Investment Account shall invest such amounts under regulations which shall be prescribed by the Board in a mix of equities and fixed income instruments so as to ensure, to the maximum extent practicable, that, of the total balance in the Fund credited to such account and available for investment (after allowing for administrative expenses), the percentage invested in fixed income instruments by individuals in designated cohorts, ranging in age up to those of at least retirement age, will increase in a linear progression from 0 percent to 100 percent as the cohort approaches retirement age.

(2)

Investment in equities

In accordance with regulations which shall be prescribed by the Board, the Board shall establish standards which must be met by equities selected for investment in the Lifecycle Investment Account. In conformity with such standards, the Board shall select, for purposes of such investment, indices which are comprised of equities the aggregate market value of which is, in each case, a reasonably broad representation of companies whose shares are traded on the equity markets. Amounts invested in equities under an investment option shall be held in a portfolio designed to replicate the performance of one or more of such indices.

(3)

Investment in fixed income instruments

In accordance with regulations which shall be prescribed by the Board, the Board shall establish standards which must be met by fixed income instruments selected for investment in the Lifecycle Investment Account. Such standards shall take into account the competing considerations of risk and return. Amounts invested in fixed income instruments in an investment option shall be held in a portfolio which shall consist of a diverse range of fixed income instruments, taking into full account the opposing considerations of risk and maximization of return.

(e)

Government Securities Investment Account

(1)

In general

Amounts in the Government Securities Investment Account shall be invested in securities of the United States Government as provided in this subsection

(2)

Issuance of special obligations

The Secretary of the Treasury is authorized to issue special interest-bearing obligations of the United States for purchase by the Tier II Investment Fund for purposes of investment of amounts in the Government Securities Investment Account. Such obligations shall have maturities fixed with due regard to the needs of the Fund as determined by the Board, and shall bear interest at a rate equal to the average market yield (computed by the Secretary of the treasury on the basis of market quotations as of the end of the calendar month next preceding the date of issue of such obligations) on all marketable interest-bearing obligations of the United States then forming a part of the public debt which are not due or callable earlier than 4 years after the end of such calendar month. Any average market yield computed under this paragraph which is not a multiple of one-eighth of 1 percent shall be rounded to the nearest multiple of one-eighth of 1 percent.

(f)

Fixed Income Investment Account

Amounts in the Fixed Income Investment Account shall be invested in instruments or obligations which return the amount invested and pay interest, at a specified rate or rates, on that amount during a specified period of time, consisting of instruments or obligations in one or more of the following categories:

(1)

insurance contracts;

(2)

certificates of deposit; or

(3)

other instruments or obligations selected by qualified professional asset managers.

(g)

Common Stock Index Investment Account

(1)

Portfolio design

Amounts held in the Common Stock Investment Account shall be invested in a portfolio of common stock designed to replicate the performance of the index selected under paragraph (2). The portfolio shall be designed such that, to the extent practicable, the percentage of the balance in the Common Stock Index Investment Account that is invested in each stock is the same as the percentage determined by dividing the aggregate market value of all shares of that stock by the aggregate market value of all shares of all stocks included in such index.

(2)

Selection of index

The Board shall select, for purposes of investment of amounts held in the Common Stock Investment Account, an index which is a commonly recognized index comprised of common stock the aggregate market value of which is a reasonably complete representation of the United States equity markets.

(h)

Small Capitalization Stock Index Investment Account

(1)

Portfolio design

Amounts held in the Small Capitalization Stock Index Investment Account shall be invested in a portfolio of common stock designed to replicate the performance of the index selected under paragraph (2). The portfolio shall be designed such that, to the extent practicable, the percentage of the balance in the Small Capitalization Stock Index Investment Account that is invested in each stock is the same as the percentage determined by dividing the aggregate market value of all shares of that stock by the aggregate market value of all shares of all stocks included in such index.

(2)

Selection of index

The Board shall select, for purposes of investment of amounts held in the Small Capitalization Stock Index Investment Account, an index which is a commonly recognized index comprised of common stock the aggregate market value of which represents the United States equity markets excluding the common stocks included in the Common Stock Index Investment Account.

(i)

International Stock Index Investment Account

(1)

Portfolio design

Amounts held in the International Stock Index Investment Account shall be invested in a portfolio of stock designed to replicate the performance of the index selected under paragraph (2). The portfolio shall be designed such that, to the extent practicable, the percentage of the balance in the International Stock Index Investment Account that is invested in each stock is the same as the percentage determined by dividing the aggregate market value of all shares of that stock by the aggregate market value of all shares of all stocks included in such index.

(2)

Selection of index

The Board shall select, for purposes of investment of amounts held in the International Stock Index Investment Account, an index which is a commonly recognized index comprised of common stock the aggregate market value of which is a reasonably complete representation of the international equity markets excluding the United States equity markets.

(j)

Additional investment options

The Board may from time to time, as determined by regulation as appropriate to further the purposes of this section, shall—

(1)

establish investment accounts in the Tier II Investment Fund meeting the requirements of this section in addition to those established by this section, and

(2)

terminate investment accounts in the Tier II Investment Fund established pursuant to paragraph (1).

(k)

Disclosure of administrative costs

The Board shall provide to each participating individual an annual disclosure of the rate of administrative costs chargeable with respect to investment in each investment account in the Tier II Investment Fund. Such disclosure shall be written in a manner calculated to be understood by the average participating individual.

(l)

Treatment of amounts held in Tier II Investment Fund

Subject to this part, amounts deposited into, and held and accounted for in, the Tier II Investment Fund with respect to any participating individual shall continue to be treated as property of such participating individual, held in trust for such participating individual in the Fund.

257.

Tier III Investment Options

(a)

Election of Tier III Investment Options

(1)

In general

A participating individual may elect to direct transfers from amounts in the Savings Fund credited to the personal social security savings account of such individual into 1 or more Tier III Investment Options in accordance with paragraph (2).

(2)

Commencement of Tier III investment options upon attainment of election threshold

In any case in which, as of the end of any calendar year, the total balance in the Savings Fund credited to a participating individual’s personal social security savings account exceeds for the first time the election threshold, the Board shall, by regulation, provide for an opportunity for such participating individual to make, at any time thereafter, such individual’s first election of one or more of the Tier III Investment Options for investment of an amount in the Savings Fund credited to such account. Such election may be in lieu of or in addition to investment in the options available with respect to the Tier II Investment Fund of the Savings Fund.

(3)

Allocation of funds

In the case of an election under paragraph (1), funds credited to the personal social security savings account of the participating individual and elected for transfer to one or more Tier III Investment Options shall be transferred to the Tier III Investment Options so elected for such calendar year, in percentages specified in the election by the participating individual for each applicable portfolio.

(4)

Election threshold

(A)

In general

Subject to subparagraph (B), for purposes of this subsection the term `election threshold' means an amount equal to $25,000.

(B)

Adjustments

The Board shall adjust annually (effective for annual reporting months occurring after December 2006) the dollar amount set forth in subparagraph (A) under procedures providing for adjustments in the same manner and to the same extent as adjustments are provided for under the procedures used to adjust benefit amounts under section 215(i)(2)(A), except that any amount so adjusted that is not a multiple of $1.00 shall be rounded to the nearest multiple of $1.00.

(5)

Subsequent investment of amounts held in Tier III Investment Options

Any amounts held in one or more Tier III Investment Options may be—

(A)

transferred at any time to one or more other Tier III Investment Options, subject to applicable regulations of the Board and the terms governing the affected Tier III Investment Options, and

(B)

transferred, not more frequently than annually, to the Tier II Investment Fund, for deposit in the applicable investment account then selected by the participating individual under section 256.

(b)

Certification of eligible entities

(1)

In general

The Board shall certify eligible entities to offer Tier III Investment Options under this part.

(2)

Application

Any eligible entity that desires to be certified by the Board to offer a Tier III Investment Option shall submit an application to the Board at such time, in such manner, and containing such information as the Board may require.

(3)

Requirements for approval

The Board shall not certify an eligible entity unless such eligible entity agrees to the following requirements:

(A)

Separate accounting

Each eligible entity shall, with respect to each Tier III Investment Option offered by such eligible entity to participating individuals—

(i)

establish separate accounts for the contributions of each participating individual, and any earnings properly allocable to the contributions, and

(ii)

maintain separate recordkeeping with respect to each account.

(B)

Treatment of amounts held in Fund

Amounts deposited into, and held and accounted for in, a Tier III Investment Option with respect to any participating individual shall be treated as property of such participating individual, held in trust for such participating individual.

(C)

Trust requirements

Amounts held and accounted for with respect to a participating individual shall be held in a trust created or organized in the United States for the exclusive benefit of such individual or his beneficiaries.

(D)

Exemption from third party claims

Each Tier III Investment Option shall be exempt from any and all third party claims against the eligible entity.

(E)

Disclosure of administrative costs

Each eligible entity offering a Tier III Investment Option under this section shall provide to each participating individual an annual disclosure of the rate of administrative costs chargeable with respect to investment in such Option. Such disclosure shall be written in a manner calculated to be understood by the average participating individual. The Board shall provide for coordination of disclosures with respect to Tier III Investment Options under this subparagraph so as to assist participating individuals in comparing alternative Options based on administrative costs.

(F)

Reporting to the Executive Director and the Board

Each eligible entity shall provide reports to the Executive Director and the Board at such time, in such manner, and containing such information as the Board may require.

(4)

Eligible entity defined

For purposes of this section, the term eligible entity means any investment company (as defined in section 3 of the Investment Company Act of 1940) or other person that the Board determines appropriate to offer Tier III Investment Options under this part.

(c)

Approval of Tier III Investment Options

(1)

In general

No funds may be transferred into a Tier III Investment Option unless the Board has approved an application submitted under paragraph (2) with respect to the option.

(2)

Application

With respect to each Tier III Investment Option that an eligible entity certified under subsection (b)(1) seeks to offer, such entity shall submit an application to the Board at such time, in such manner, and containing such information as the Board may require.

(3)

Qualifications for approval

The Board may not approve an application submitted under paragraph (2) in connection with a Tier III Investment Option unless the following requirements are met:

(A)

Option must be offered by certified eligible entity

The Tier III Investment Option is offered by an eligible entity certified under subsection (b).

(B)

Option must meet quality factors

(i)

In general

The Tier III Investment Option meets qualifications which shall be prescribed by the Board relating to the quality factors described in clause (ii).

(ii)

Quality factors

The quality factors described in this clause are—

(I)

the safety and soundness of the Tier III Investment Option's proposed investment policy;

(II)

the experience and record of performance of the proposed investment option, if any;

(III)

the experience and record of performance of the entity issuing or offering such option; and

(IV)

such other factors as the Board may determine appropriate.

(d)

Considerations for certification and approval

In determining whether to certify an eligible entity under subsection (b) or to approve a Tier III Investment Option under subsection (c), the Board shall—

(1)

act in the best interests of the participating individuals;

(2)

base its determination solely on considerations of balancing safety and soundness of the Tier III Investment Option with the maximization of returns of such option; and

(3)

not base any determination related to the entity or option on political or other extraneous considerations.

(e)

Sponsorship of Tier III Investment Options by Membership and Labor Organizations

(1)

In general

A membership or labor organization (as defined by the Board) may sponsor Tier III Investment Options under contracts with eligible entities certified under subsection (b) who shall administer the investment option if such investment option is approved by the Board under subsection (c).

(2)

Limitation to membership

A membership or labor organization (as so defined) may limit to the members of such organization participation in a Tier III Investment Option sponsored by such organization.

(f)

Distributions in case of death

Upon the death of a participating individual, the amount of any assets held under a Tier III Investment Option credited to the personal social security savings account of such individual shall be distributed in accordance with section 258(e).

258.

Personal social security savings annuity and other distributions

(a)

Date of initial distribution

Except as provided in subsection (e), distributions may be made to a participating individual from amounts credited to the personal social security savings account of such individual only on or after the earliest of—

(1)

the date the participating individual attains retirement age (as defined in section 216(l)(1)) or, if elected by the individual, early retirement age (as defined in section 216(l)(2)); or

(2)

the date on which the amount credited to the participating individual's personal social security savings account is sufficient to purchase a personal social security savings annuity with a monthly benefit that is at least equal to the minimum annuity payment amount (as defined in subsection (b)(4)(C)(iii)).

(b)

Personal social security savings annuities

(1)

Notice of available annuities

Not later than the date determined under subsection (a), the Board shall notify each participating individual of—

(A)

the most recent listing of personal social security savings annuities offered by the Annuity Issuance Authority under paragraph (2); and

(B)

the entitlement of the participating individual to purchase such an annuity.

(2)

Annuity Issuance Authority

There is established in the office of the Board an agency which shall be known as the Annuity Issuance Authority. The Authority shall provide, in accordance with regulations of the Board, for the issuance of personal social security savings annuities for purchase from the Authority under this section and to otherwise administer the issuance of such annuities in accordance with such regulations.

(3)

Annuity Reserves Account

There is established in the Savings Fund an Annuity Reserves Account. The Account shall consist of all amounts received by the Authority from the purchase of personal social security savings annuities under this section (plus such amounts as may be transferred to the Account under paragraph (5)(B)), increased by the total net earnings from investments of such reserves under subparagraph (A) of paragraph (5) and reduced by the total net losses from investments of such reserves under such subparagraph.

(4)

Purchase of annuities

(A)

Selection of annuity

On a date elected by the participating individual, but no earlier than the date determined under subsection (a), a participating individual may purchase a personal social security savings annuity selected from among the annuities offered by the Authority under paragraph (2).

(B)

Transfer of assets

Upon the selection of an annuity by a participating individual under subparagraph (A), the Board shall provide for the transfer of assets, credited to the personal social security savings account of the participating individual and held in the Tier II Investment Fund or under 1 or more Tier III Investment Options (or any combination thereof), in a total amount sufficient to purchase the annuity selected by the participating individual from annuities offered by the Authority.

(C)

Minimum annuity payment amount

(i)

In general

Subject to subparagraph (D), if, at the time a personal social security savings annuity is purchased under subparagraph (A), the assets credited to the personal social security savings account of the participating individual are sufficient to purchase a personal social security savings annuity offered by the Authority under paragraph (2) with a monthly annuity payment that is at least equal to the minimum annuity payment amount, the amount of the monthly annuity payment provided by such annuity may not be less then the minimum annuity payment amount.

(ii)

Construction

Nothing in this subparagraph shall be construed to prohibit a participating individual from using personal social security savings account assets to purchase a personal social security savings annuity offered by the Authority under paragraph (2) which provides for a monthly payment in excess of the minimum amount required under clause (i).

(iii)

Minimum annuity payment amount defined

For purposes of this part, the term minimum annuity payment amount means, as of any date, an amount equal to the monthly equivalent of 150 percent of the poverty line for an individual (as in effect on such date), determined under the poverty guidelines of the Department of Health and Human Services issued under sections 652 and 673(2) of the Omnibus Budget Reconciliation Act of 1981.

(iv)

Deemed total part A monthly benefit amount

For purposes of clause (iii), the term deemed total part A monthly benefit amount means, with respect to a participating individual, the total amount which would be payable as monthly insurance benefits under section 202 for the month in which the participating individual attains or would attain early retirement age (as defined in section 216(l)(2)), based on the participating individual’s wages and self-employment income, if the participating individual applied for old-age insurance benefits under section 202(a) during such month and all other individuals who would therefore be eligible for benefits under section 202 for such month based on such wages and self-employment income applied for such benefits during such month.

(v)

Assumptions

(I)

Earnings and longevity

In the case of a participating individual with respect to whom determinations under this subparagraph are made prior to the month described in clause (iv), the participating individual’s average indexed monthly earnings (within the meaning of section 215(b)) for such month shall be projected, under regulations which shall be prescribed by the Board, on the basis of reasonable actuarial assumptions, and the Board shall assume the survival through the end of such month of all other individuals described in clause (iv).

(II)

Projected investment returns

For purposes of making actuarial determinations relating to the amounts of annuities offered by the Authority under this section and the amounts necessary for the purchase of such annuities, the Authority shall project returns from the investment, in accordance with paragraph (5)(A), of the reserves held in the Annuities Reserves Account. The projection by the Authority of such returns shall be made under assumptions of long-term average returns of equities and fixed income instruments which shall be issued annually by the Board of Trustees of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund, based on analysis of historical market returns.

(D)

Purchase of annuities in the event of insufficient assets

If a participating individual desires, or is required under subsection (f), to purchase a personal social security savings annuity under subsection (b) on or after the date determined under subsection (a)(1) and the assets of the personal social security savings account of such individual are insufficient to purchase a personal social security savings annuity that provides for a monthly payment that is at least equal to the minimum annuity payment amount (as defined in paragraph (4)(C)(iii)), the participating individual shall purchase a personal social security savings annuity with a monthly payment equal to the maximum amount that the participating individual's personal social security savings account can fund, as determined in accordance with regulations which shall be prescribed by the Authority, and that otherwise meets the requirements of this subsection (including the cost-of-living protection requirement of subsection (c)(1)(C)), and the Authority shall provide for appropriate certification to the Secretary of the Treasury with respect to the participating individual’s eligibility for guarantee payments under section 259.

(5)

Maintenance of reserves for payment of annuities

(A)

Investment of reserves

For purposes of investment of reserves held in the Annuity Reserves Account, the Authority shall contract with appropriate investment managers, recordkeepers, and custodians selected by the Authority for investment of such reserves. Such reserves shall be invested under regulations which shall be prescribed by the Authority so as to ensure, to the maximum extent practicable, that, of the total balance of the reserves (after payment of administrative expenses to such managers, recordkeepers, and custodians)—

(i)

65 percent is invested in equities in the same manner and under the same standards as are provided in section 256(c)(4), and

(ii)

35 percent is invested in fixed income instruments in the same manner and under the same standards as are provided in section 256(c)(5).

(B)

Provision for full payment of annuities

Payment of personal social security savings annuities in accordance with the terms of such annuities shall be made, irrespective of the sufficiency of reserves in the Annuity Reserves Fund attributable to funds obtained from the purchase of such annuities. In the event of any impending insufficiency in the Annuity Reserves Account for the next fiscal year, the Authority shall certify to the Secretary of the Treasury the amount of such insufficiency, and the Secretary of the Treasury shall transfer from the Federal Old-Age and Survivors Insurance Trust Fund to the Annuity Reserves Account the amount of the insufficiency, as so certified, in such installments, made prior to or during such fiscal year, as are necessary to eliminate in advance such insufficiency.

(c)

Personal social security savings annuity

(1)

In general

For purposes of this part, the term `personal social security savings annuity' means an annuity that meets the following requirements:

(A)

The annuity starting date (as defined in section 72(c)(4) of the Internal Revenue Code of 1986) commences on the first day of the month beginning after the date of the purchase of the annuity.

(B)

The terms of the annuity provide—

(i)

for a monthly payment to the participating individual during the life of the participating individual equal to at least the minimum annuity payment amount (as defined in subsection (b)(4)(C)(iii)), or

(ii)

in the case of an annuity purchased under subparagraph (D) of subsection (b)(4), the maximum monthly payment determined under regulations prescribed under such subparagraph.

(C)

The terms of the annuity include procedures providing for adjustments in the amount of the monthly payments in the same manner and to the same extent as adjustments are provided for under the procedures used to adjust benefit amounts under section 215(i)(2)(A). Nothing in this subparagraph shall be construed to preclude the terms governing such an annuity from providing for adjustments in the amount of monthly payments resulting in a payment for any month greater than the payment for that month that would result from adjustments required under the preceding sentence (b)(4)(D).

(D)

The terms of the annuity include such other terms and conditions as the Board requires for the protection of the annuitant.

(2)

Exemption from third party claims

Each personal social security savings annuity shall be exempt from any and all third party claims against the issuer.

(d)

Right to use excess personal social security savings account assets

To the extent assets credited to a participating individual's personal social security savings account remain after the purchase of an annuity under subsection (b), the remaining assets shall be payable to the participating individual at such time, in such manner, and in such amounts as the participating individual may specify, subject to subsection (f).

(e)

Distributions in case of death

If the participating individual dies before all amounts which are held in the Tier I Investment Fund or the Tier II Investment Fund of the Savings Fund or held under a Tier III Investment Option and which are credited to the personal social security savings account of the individual are otherwise distributed in accordance with this section, such amounts shall be distributed, under regulations which shall be prescribed by the Board—

(1)

in any case in which one or more beneficiaries have been designated in advance, to such beneficiaries in accordance with such designation as provided in such regulations, and

(2)

in the case of any amount not distributed as described in paragraph (1), to such individual's estate.

(f)

Date of final distribution

All amounts credited to the personal social security savings account of an individual shall be distributed, by means of the purchase of annuities or otherwise in a manner consistent with the requirements of this section, not later than 5 years after the date the individual attains retirement age (as defined in section 216(l)). The Board shall provide by regulation for means of distribution necessary to ensure compliance with the requirements of this subsection.

259.

Guarantee of promised benefits

(a)

In general

If, for any month ending after the date on which a participating individual attains retirement age (as defined in section 216(l)(1)), the monthly payment under a participating individual's personal social security savings annuity is less than the minimum annuity payment amount (as defined in section 258(b)(4)(C)(iii)), adjusted as provided in section 258(c)(1)(C), the Annuity Issuance Authority shall so certify to the Secretary of the Treasury and, upon receipt of such certification, such Secretary shall provide to the participating individual, from amounts in the Federal Old-Age and Survivors Insurance Trust Fund, a guaranty payment for such month to supplement the personal social security savings annuity and to guarantee full payment of such individual's monthly promised benefits.

(b)

Guaranty payment

For purposes of subsection (a), a participating individual's guaranty payment for any month is equal to the excess of—

(1)

the minimum annuity payment amount (as defined in section 258(b)(4)(C)(iii)), adjusted as provided in section 258(c)(1)(C); over

(2)

the payment for such month of the personal social security savings annuity purchased by the participating individual.

(c)

Protection of part A normal retirement benefit levels

(1)

In general

In any case in which, for any month ending after the date on which a participating individual attains retirement age (as defined in section 216(l)(1))—

(A)

such individual’s assumed total normal retirement part A benefit for such month, exceeds

(B)

the monthly payment payable for such month under such individual’s personal social security savings annuity,

the Secretary of the Treasury shall pay to such individual for such month, from amounts in the Federal Old-Age and Survivors Insurance Trust Fund, an additional amount (if any) equal to the excess of the amount described in subparagraph (A) over the amount described in subparagraph (B).
(2)

Definition

For purposes of this subsection, the term assumed total normal retirement part A benefit means, in connection with a participating individual, the total amount of monthly insurance benefits under section 202 based on such individual’s wages and self-employment income (adjusted by taking into account adjustments under section 215(i)) that would have been payable if—

(A)

section 202(z) did not apply, and

(B)

such individual applied for old-age insurance benefits under section 202(a) during the month in which such individual attains retirement age (as defined in section 216(l)(1)).

260.

Personal Social Security Savings Board

(a)

Establishment

There is established in the executive branch of the Government a Personal Social Security Savings Board.

(b)

Composition

The Board shall be composed of—

(1)

3 members appointed by the President, of whom 1 shall be designated by the President as Chairman; and

(2)

2 members appointed by the President, of whom—

(A)

1 shall be appointed by the President after taking into consideration the recommendation made by the Speaker of the House of Representatives in consultation with the Minority Leader of the House of Representatives; and

(B)

1 shall be appointed by the President after taking into consideration the recommendation made by the Majority Leader of the Senate in consultation with the Minority Leader of the Senate.

(c)

Advice and consent

Appointments under subsection (b) shall be made by and with the advice and consent of the Senate.

(d)

Membership requirements

Members of the Board shall have substantial experience, training, and expertise in the management of financial investments and pension benefit plans.

(e)

Length of appointments

(1)

Terms

A member of the Board shall be appointed for a term of 4 years, except that of the members first appointed under subsection (b)—

(A)

the Chairman shall be appointed for a term of 4 years;

(B)

the members appointed under subsection (b)(2) shall be appointed for terms of 3 years; and

(C)

the remaining members shall be appointed for terms of 2 years.

(2)

Vacancies

(A)

In general

A vacancy on the Board shall be filled in the manner in which the original appointment was made and shall be subject to any conditions that applied with respect to the original appointment.

(B)

Completion of term

An individual chosen to fill a vacancy shall be appointed for the unexpired term of the member replaced.

(3)

Expiration

The term of any member shall not expire before the date on which the member's successor takes office.

(f)

Duties

The Board shall—

(1)

administer the program established under this part;

(2)

establish policies for the investment and management of the Savings Fund, including the Tier I Investment Fund and the Tier II Investment Fund, and amounts held under Tier III Investment Options, including policies applicable to the asset managers, recordkeepers, and custodians with responsibility for managing the investment of amounts credited to personal social security investment accounts, and for the management and operation of personal social security savings annuities, which shall provide for—

(A)

prudent investments suitable for accumulating funds for payment of retirement income;

(B)

sound management practices; and

(C)

low administrative costs;

(3)

review the performance of investments made for the Tier I Investment Fund and the Tier II Investment Fund;

(4)

review the performance of investments made under Tier III Investment Options;

(5)

review the management and operation of personal social security savings annuities;

(6)

review and approve the budget of the Board; and

(7)

comply with the fiduciary requirements of part 4 of subtitle B of title I of the Employee Retirement Income Security Act of 1974 (relating to fiduciary responsibility) in connection with any exercise of discretion in connection with the assets of the Savings Fund.

(g)

Administrative provisions

(1)

In general

The Board may—

(A)

adopt, alter, and use a seal;

(B)

except as provided in paragraph (4), direct the Executive Director to take such action as the Board considers appropriate to carry out the provisions of this part and the policies of the Board in accordance with delegations under this part;

(C)

upon the concurring votes of 4 members, remove the Executive Director from office for good cause shown;

(D)

provide to the Executive Director such resources as are necessary to carry out the duties of the Executive Director; and

(E)

take such other actions as may be necessary to carry out the functions of the Board.

(2)

Meetings

The Board shall meet—

(A)

not less than once during each month; and

(B)

at additional times at the call of the Chairman.

(3)

Exercise of powers

(A)

In general

Except as provided in paragraph (1)(C), the Board shall perform the functions and exercise the powers of the Board on a majority vote of a quorum of the Board. Three members of the Board shall constitute a quorum for the transaction of business.

(B)

Vacancies

A vacancy on the Board shall not impair the authority of a quorum of the Board to perform the functions and exercise the powers of the Board.

(4)

Limitations on investments

The Board may not direct any person to invest or to cause to be invested any sums in the Tier II Investment Fund or any personal social security investment account in a specific asset or to dispose of or cause to be disposed of any specific asset of such Fund or any such account.

(h)

Compensation

(1)

In general

Each member of the Board who is not an officer or employee of the Federal Government shall be compensated at the daily rate of basic pay for level IV of the Executive Schedule for each day during which such member is engaged in performing a function of the Board.

(2)

Expenses

A member of the Board shall be paid travel, per diem, and other necessary expenses under subchapter I of chapter 57 of title 5, United States Code, while traveling away from such member's home or regular place of business in the performance of the duties of the Board.

(3)

Source of funds

Payments authorized under this subsection shall be paid from the Tier I Investment Fund or the Tier II Investment Fund, as determined appropriate by the Board.

(i)

Discharge of responsibilities

The members of the Board shall discharge their responsibilities solely in the interest of the participating individuals and their beneficiaries under this part.

(j)

Annual independent audit

The Board shall annually engage an independent qualified public accountant to audit the activities of the Board.

(k)

Submission of budget to Congress

The Board shall prepare and submit to the President, and, at the same time, to the appropriate committees of Congress, an annual budget of the expenses and other items relating to the Board which shall be included as a separate item in the budget required to be transmitted to Congress under section 1105 of title 31, United States Code.

(l)

Submission of legislative recommendations

The Board may submit to the President, and, at the same time, shall submit to each House of Congress, any legislative recommendations of the Board relating to any of its functions under this part or any other provision of law.

261.

Executive Director

(a)

Appointment of Executive Director

The Board shall appoint, without regard to the provisions of law governing appointments in the competitive service, an Executive Director by action agreed to by a majority of the members of the Board.

(b)

Duties

The Executive Director shall, as determined appropriate by the Board—

(1)

carry out the policies established by the Board;

(2)

invest and manage the Tier I Investment Fund and the Tier II Investment Fund in accordance with the investment policies and other policies established by the Board;

(3)

administer the provisions of this part relating to the Tier I Investment Fund and the Tier II Investment Fund; and

(4)

prescribe such regulations (other than regulations relating to fiduciary responsibilities) as may be necessary for the administration of this part relating to the Tier I Investment Fund and the Tier II Investment Fund.

(c)

Administrative authority

The Executive Director may, within the scope of the duties of the Executive Director as determined by the Board—

(1)

appoint such personnel as may be necessary to carry out the provisions of this part relating to the Tier I Investment Fund and the Tier II Investment Fund;

(2)

subject to approval by the Board, procure the services of experts and consultants under section 3109 of title 5, United States Code;

(3)

secure directly from an Executive agency, the United States Postal Service, or the Postal Rate Commission any information necessary to carry out the provisions of this part and the policies of the Board relating to the Tier I Investment Fund and the Tier II Investment Fund;

(4)

make such payments out of sums in the Tier I Investment Fund and the Tier II Investment Fund as the Executive Director determines, in accordance with regulations of the Board, are necessary to carry out the provisions of this part and the policies of the Board;

(5)

pay the compensation, per diem, and travel expenses of individuals appointed under paragraphs (1), (2), and (6) from the Tier I Investment Fund or the Tier II Investment Fund, in accordance with regulations of the Board;

(6)

accept and use the services of individuals employed intermittently in the Government service and reimburse such individuals for travel expenses, authorized by section 5703 of title 5, United States Code, including per diem as authorized by section 5702 of such title;

(7)

except as otherwise expressly prohibited by law or the policies of the Board, delegate any of the Executive Director's functions to such employees under the Board as the Executive Director may designate and authorize such successive redelegations of such functions to such employees under the Board as the Executive Director may consider to be necessary or appropriate; and

(8)

take such other actions as are appropriate to carry out the functions of the Executive Director.

.

(b)

Effective date

The amendments made by this section shall apply with respect to wages paid after December 31, 2005, for pay periods ending after such date and self-employment income for taxable years beginning after such date.

102.

Monthly insurance benefits for participating individuals

Section 202 of the Social Security Act (42 U.S.C. 402) is amended by adding at the end the following new subsection:

(z)

Benefits for participants under part B

(1)

Notwithstanding the preceding provisions of this section—

(A)

a participating individual under the Personal Social Security Savings Accounts Program under part B shall not be entitled to old-age insurance benefits under subsection (a); and

(B)

except as provided in paragraph (2), no individual shall be entitled to benefits under this section on the basis of the wages and self-employment income of such a participating individual.

(2)

In the case of any such participating individual who dies before such individual purchases a personal social security savings annuity under section 258, paragraph (1)(B) shall not apply with respect to child’s insurance benefits under subsection (d), widow’s insurance benefits under subsection (e), widower’s insurance benefits under subsection (f), mother’s and father’s insurance benefits under subsection (g), and parent’s insurance benefits under subsection (h).

.

103.

General fund transfers to the Federal Old-Age and Survivors Insurance Trust Fund

(a)

Recapture of corporate tax on account yields

(1)

In general

Section 201 of the Social Security Act (42 U.S.C. 401) is amended by adding at the end the following new subsection:

(o)

Recapture of corporate tax on yields from personal social security savings account investments

The Secretary of the Treasury, in consultation with the Personal Social Security Savings Board, shall estimate and transfer to the Federal Old-Age and Survivors Insurance Trust Fund within 3 months after the end of each fiscal year an amount equal to the recapture amount for such fiscal year. For purposes of the preceding sentence, the recapture amount for any fiscal year shall be equal to the amount of corporate tax receipts under the Internal Revenue Code of 1986 deposited in the Treasury for that fiscal year which are attributable to personal social security savings account investments under part B of this title.

.

(2)

Effective date

The amendment made by paragraph (1) shall apply with respect to fiscal years beginning after September 30, 2005.

(3)

Initial assumptions

In determining the recapture amount under section 201(o) of the Social Security Act (added by paragraph (1)) for fiscal years 2006 and 2007, the Secretary of the Treasury shall make the following assumptions concerning the total amount of taxable capital in the United States represented by the total assets held by personal social security savings accounts established under part B of title II of the Social Security Act:

(A)

80 percent of such total assets are a net addition to national investments.

(B)

Of the amount described in subparagraph (A), 90 percent will be invested in the United States and subject to taxation under the Internal Revenue Code of 1986.

(C)

Of the amount described in subparagraph (B), 95 percent will be subject to the Federal corporate tax.

(D)

The amount described in subparagraph (C) is subject to the statutory tax rate of 35 percent (resulting in an effective corporate tax rate of 23.9 percent on the earnings of all such total assets).

(b)

Recapture of Government savings over baseline

(1)

In general

Section 201 of the Social Security Act (as amended by subsection (a)) is amended further by adding at the end the following new subsection:

(p)

Recapture of Government savings over baseline

(1)

In general

The Secretary of the Treasury, in consultation with the Personal Social Security Savings Board, shall estimate and transfer to the Federal Old-Age and Survivors Insurance Trust Fund within 3 months after the end of each fiscal year an amount equal to the spending reductions amount for such fiscal year. For purposes of the preceding sentence, the spending reductions amount shall be an amount equal to—

(A)

for any fiscal year in the period beginning with fiscal year 2006 and ending with fiscal year 2013, the excess of—

(i)

20 percent of the gross domestic product (as determined by the Congressional Budget Office) for the fiscal year for which the determination is made; over

(ii)

the product of—

(I)

20 percent of the gross domestic product (as so determined) for the fiscal year for which the determination is made; and

(II)

0.99, factored a number of times equal to the number of fiscal years during such period which end with or before the fiscal year for which the determination is made; and

(B)

for any fiscal year beginning after fiscal year 2013 and ending with the termination year—

(i)

the amount determined under subparagraph (A) for fiscal year 2013; increased by

(ii)

the rate of growth of the gross domestic product (as so determined) over the period beginning with fiscal year 2014 and ending with the fiscal year for which the determination is made.

(2)

Accommodation for low oasdi balance ratio

Notwithstanding paragraph (1)(B), in any case in which the OASDI trust fund ratio is less than 125 percent as of the end of the fiscal year preceding each fiscal year during any period of 1 or more fiscal years referred to in paragraph (1)(B) and preceding the termination year—

(A)

the spending reductions amount for each fiscal year during such period shall be the excess of—

(i)

20 percent of the gross domestic product (as projected by the Department of Commerce) for the fiscal year for which the determination is made; over

(ii)

the product of—

(I)

20 percent of the gross domestic product (as so projected) for the fiscal year for which the determination is made; and

(II)

0.99, factored a number of times equal to the number of fiscal years during such period which end with or before the fiscal year for which the determination is made plus the number of fiscal years during the period described in paragraph (1)(A), and

(B)

paragraph (1)(B) shall apply with respect to subsequent fiscal years by substituting for the reference, in paragraph (1)(B)(i), to fiscal year 2013 a reference to the last fiscal year in such period.

(3)

Termination year

For purposes of paragraph (1)(B), the termination year is the first fiscal year, after fiscal year 2013—

(A)

for which the OASDI trust fund ratio is at least 125 percent; and

(B)

on the last day of which there are no outstanding transition obligations of the Self-Liquidating Social Security Transition Fund under section 262.

(4)

OASDI trust fund ratio

In paragraph (2)(A), the term OASDI trust fund ratio means, for a fiscal year, the ratio (expressed as a percentage) of—

(A)

the combined balance in the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund, as of the last day of such fiscal year; over

(B)

the amount estimated by the Commissioner of Social Security to be the total amount to be paid from such Trust Funds during the fiscal year following such fiscal year for all purposes authorized by this section (excluding any transfer payments between such Trust Funds and reducing the amount of any transfer to the Railroad Retirement Account by the amount of any transfers into either such Trust Fund from such Account).

.

(2)

Effective date

The amendment made by paragraph (1) shall apply with respect to fiscal years beginning after September 30, 2005.

104.

Tax treatment of accounts

(a)

In general

(1)

In general

Subchapter F of chapter 1 of the Internal Revenue Code of 1986 (relating to exempt organizations) is amended by adding at the end the following new part:

IX

Personal Social Security Savings Program

Sec. 530A. Personal social security savings program

530A.

Personal social security savings program

(a)

General Rule

The Social Security Personal Savings Fund and each Tier III Investment Option are exempt from taxation under this subtitle. Notwithstanding the preceding sentence, sums in a personal social security savings account which are attributable to a Tier III Option shall be subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations).

(b)

Distributions

(1)

In general

Any qualified distribution from—

(A)

amounts credited to a personal social security savings account from the Social Security Personal Savings Fund or attributable to a Tier III Investment Option, or

(B)

a personal social security savings annuity,

shall not be included in the gross income of the distributee.
(2)

Qualified distribution

For purposes of paragraph (1), the term qualified distribution means a distribution which meets the requirements of section 258 of the Social Security Act and which is not a guaranty payment (as defined by section 259 of such Act).

(c)

Definitions

For purposes of this section—

(1)

Personal social security savings account

The term personal social security savings account means an account established under section 254(a) of the Social Security Act.

(2)

Personal social security savings annuity

The term personal social security savings annuity means an annuity approved by the Personal Social Security Savings Board under section 258(b)(3) of the Social Security Act.

(3)

Social Security Personal Savings Fund

The term Social Security Personal Savings Fund means the Savings Fund established under section 252 of the Social Security Act.

(4)

Tier III Investment Option

The term Tier III Investment Option has the meaning given such term by section 251(9) of the Social Security Act.

(d)

Estate tax treatment

No amount shall be includible in the gross estate of any individual for purposes of chapter 11 by reason of an interest in the Tier I Investment Fund or the Tier II Investment Fund of the Savings Fund or held under a Tier III Investment Option and which is credited to the personal social security savings account of the individual.

.

(2)

Conforming amendment

Section 86(d)(1)(A) of such Code is amended by inserting part A of after under.

(3)

Clerical amendment

The table of parts for subchapter F of chapter 1 of such Code is amended by adding after the item relating to part VIII the following new item:

Part IX. Personal Social Security Savings Program.

.

(b)

Guaranty payments

Paragraph (1) of section 86(d) of the Internal Revenue Act of 1986, as amended by subsection (b), is amended by striking or at the end of subparagraph (A), by striking the period and inserting , or at the end of subparagraph (B), and by adding at the end the following new subparagraph:

(C)

a guaranty payment under section 259(a), and a payment of an additional amount under section 259(c), of the Social Security Act.

.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2005.

105.

Self-Liquidating Social Security Transition Fund

Part B of title II of the Social Security Act (as added by section 101 of this Act) is amended by adding at the end the following new section:

262.

Self-Liquidating Social Security Transition Fund

(a)

Establishment

There is hereby created on the books of the Treasury of the United States a trust fund to be known as the Self-Liquidating Social Security Transition Fund (in this section referred to as the Transition Fund).

(b)

Board of Trustees

(1)

Establishment

With respect to the Transition Fund, there is hereby created a body to be known as the Board of Trustees of the Transition Fund (in this section referred to as the Board of Trustees) composed of the Commissioner of Social Security, the Secretary of the Treasury, and the members of the Personal Social Security Savings Board.

(2)

Duties

The Board of Trustees shall—

(A)

provide for the issuance of obligations by the Transition Fund pursuant to subsection (c),

(B)

provide for the receipt and management of amounts paid into the Transition Fund pursuant to subsection (d),

(C)

use all funds paid into the Transition Fund to redeem obligations issued under subsection (c) as soon as practicable,

(D)

report to Congress not later than the first day of April of each year on the operation and status of the Transition Fund during the preceding fiscal year and on its expected operation and status during the current fiscal year and the next 2 fiscal years, and

(E)

review the general policies followed in managing the Transition Fund, and recommend changes in such policies, including necessary changes in the provisions of law which govern the way in which the Transition Fund is to be managed.

(3)

Meetings

The Board of Trustees shall meet not less frequently than once each calendar year.

(c)

Issuance of Transition Fund bonds

(1)

Issuance

(A)

In general

The purposes for which obligations of the United States may be issued under chapter 31 of title 31, United States Code, are hereby extended to authorize the issuance at par of public-debt obligations by the Transition Fund.

(B)

Required issuance

Beginning on January 1, 2006, whenever any obligation held in the Federal Old-Age and Survivors Insurance Trust Fund or the Federal Disability Insurance Trust Fund is repaid from the general fund of the Treasury to either of such Trust Funds, the Transition Fund shall issue an obligation under this subsection in an amount equal to the amount of interest and principal so repaid.

(C)

Transfer of proceeds to general fund of the Treasury

Proceeds from the issuance of any obligation issued under this section shall be transferred to the general fund of the Treasury.

(D)

Accounting

The debt owed on any obligation issued under this section shall be considered to be debt of the Transition Fund and shall be accounted for in such manner.

(2)

Maturities and interest rate

Such obligations issued by the Transition Fund for purchase by the public shall have maturities fixed with due regard for the needs of the Transition Fund and shall bear interest at a rate equal to the average market yield (computed by the Secretary of the Treasury on the basis of market quotations as of the end of the calendar month next preceding the date of such issue) on all marketable interest-bearing obligations of the United States then forming a part of the public debt which are not due or callable until after the expiration of 4 years from the end of such calendar month, except that where such average market yield is not a multiple of one-eighth of 1 per centum, the rate of interest on such obligations shall be the multiple of one-eighth of 1 per centum nearest such market yield.

(3)

Repayment of obligations

Obligations issued under this subsection may be redeemed only by funds in the Transition Fund.

(d)

Deposit of OASDI Trust Fund surplus

(1)

In general

There are appropriated to the Transition Fund for the fiscal year beginning in 2030, and for each fiscal year thereafter, out of any moneys in the Federal Old-Age and Survivors Insurance Trust Fund, amounts equivalent to the OASDI trust fund surplus (as defined in paragraph (2)) for the preceding fiscal year.

(2)

Transfers based on estimates

The amounts appropriated by paragraph (1) shall be transferred from time to time from the Federal Old-Age and Survivors Insurance Trust Fund to the Transition Fund, such amounts to be determined on the basis of estimates by the Commissioner of Social Security. Proper adjustments shall be made in amounts subsequently transferred to the extent prior estimates were in excess of or were less than such surplus.

(3)

OASDI Trust Fund surplus defined

In this section, the term OASDI trust fund surplus for a fiscal year means the dollar amount by which the Federal Old-Age and Survivors Insurance Trust Fund could be reduced as of the end of such fiscal year so as to result in an OASDI trust fund ratio (as defined in section 201(p)(4)) for such fiscal year equal to 125 percent.

(4)

Rule of construction

This section shall not be construed to require redemption of obligations of the Trust Fund for the purpose of making transfers to the Transition Fund under this section or for any other purpose other than to provide for payment of benefits under part A of title II of the Social Security Act.

(e)

Redemption of obligations upon deposit of funds

Obligations issued under subsection (c) may be redeemed only by funds in the Transition Fund. The Board of Trustees shall provide for the redemption of such obligations as soon as possible with funds deposited into the Transition Fund pursuant to subsection (d).

(f)

Sunset

On the first date as of which all of the obligations issued under subsection (c) have been redeemed, any balance remaining in the Transition Fund as of such date shall be deposited in the Federal Old-Age and Survivors Insurance Trust Fund, the terms of the Board of Trustees shall end, the Transition Fund shall cease to exist, and this section shall be repealed.

.

106.

Budgetary treatment of social security

(a)

In general

Section 710 of the Social Security Act (42 U.S.C. 911) is amended to read as follows:

710.

Budgetary treatment of social security

(a)

In general

Notwithstanding any other provision of law and except as provided in subsection (b), the receipts and disbursements of the Federal Old-Age and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, the Social Security Personal Savings Fund, and the Self-Liquidating Social Security Transition Fund (including transfers to and from either such Trust Fund or such Savings Fund or such Transition Fund relating to the acquisition or redemption of obligations acquired by either such Trust Fund or such Savings Fund or such Transition Fund) and the taxes imposed under sections 1401 and 3101 of the Internal Revenue Code of 1986 shall not be counted as new budget authority, outlays, receipts, or deficit or surplus for purposes of the budget of the Government as submitted by the President or the congressional budget or be reported as new budget authority, outlays, receipts, or deficit or surplus in any report of the Congressional Budget Office or any other agency or instrumentality of the Government

(b)

Matters included in the budget

Subsection (a) shall not apply with respect to the following:

(1)

transfers from the general fund of the Treasury to the Federal Old-Age and Survivors Insurance Trust Fund under section 201(o) (relating to recapture of corporate tax on account yields), which shall be treated as an expenditure of the Government;

(2)

transfers from the general fund of the Treasury to the Federal Old-Age and Survivors Insurance Trust Fund under section 201(p) (relating to recapture of Government savings over baseline), which shall be treated as an expenditure of the Government;

(3)

transfers from the general fund of the Treasury to the Federal Old-Age and Survivors Insurance Trust Fund or the Federal Disability Insurance Trust Fund under section 121(e) of the Social Security Amendments of 1983 (relating to appropriation of amounts equivalent to taxes on social security benefits) (42 U.S.C. 401 note), which shall be treated as an expenditure of the Government; and

(4)

revenues from taxes imposed under chapter 1 of the Internal Revenue Code of 1986, to the extent attributable to section 86 of such Code (relating to taxation of social security and tier 1 railroad retirement benefits), which shall be treated as a receipt of the Government.

.

(b)

Conforming amendments

(1)

Section 13301 of the Budget Enforcement Act of 1990 (2 U.S.C. 632; 2 U.S.C. 632 note) is repealed.

(2)

Section 405 of the Congressional Budget Act of 1974 (2 U.S.C. 655) is amended—

(A)

by inserting other than section 710 of the Social Security Act after Notwithstanding any other provision of law; and

(B)

by striking section, not including and all that follows through Funds, and inserting section.

(c)

Effective date

The amendments made by this section shall apply with respect to fiscal years beginning on or after October 1, 2005.

107.

Dedication of budget surpluses to saving social security

(a)

In general

Section 201 of the Social Security Act (as amended by section 103 of this Act) is amended further by adding at the end the following new subsection:

(q)

Transfer of total budget surpluses to trust fund

In the case of any fiscal year for which the total amount treated as income of the Federal Government in the total budget of the United States have exceeded the total amount treated as expenditures of the Federal Government in the total budget of the United States (as determined by the Director of the Office of Management and Budget without regard to section 710), not later than 3 months after the end of such fiscal year, the Secretary of the Treasury shall transfer from the general fund of the Treasury to the Federal Old-Age and Survivors Insurance Trust Fund an amount equal to the lesser of—

(1)

the total amount transferred from the Trust Fund during such fiscal year to the Social Security Personal Savings Fund under section 252(b) (relating to deposit of amounts equal to redirected social security contributions), or

(2)

the amount by which such total amount treated as receipts exceeded such total amount treated as expenditures.

.

(b)

Effective date

The amendment made by subsection (a) shall apply with respect to fiscal years beginning after September 30, 2005.

108.

Accounting for the Old-Age, Survivors, and Disability Insurance Program and the Personal Social Security Savings Program

Title VII of the Social Security Act is amended by inserting after section 705 (42 U.S.C. 906) the following new section:

706.

Accounting for the Old-Age, Survivors, and Disability Insurance Program and the Individual Social Security Investment Program

(a)

Social Security Lockbox Budget

At the time of the transmittal to the Congress by the President of the budget of the United States Government, the President shall transmit to each House of the Congress a separate report (to be known as the Social Security Lockbox Budget) detailing the performance during the preceding fiscal year of each of the accounts established under subsection (b). Such report shall set forth, as determined as of the end of the year—

(1)

the amount of the balance of each account,

(2)

the amount of the total charges and the amount of the total credits to each account for the year, and

(3)

the amount of the total for the year of each category of charges and credits itemized in subsection (b).

(b)

Establishment of accounts

For purposes of accounting for certain receipts and disbursement of the Treasury of the United States in connection with the Old-Age, Survivors, and Disability Insurance Program under part A of title II of the Social Security Act and the Individual Social Security Investment Program under part B of such title, the Secretary of the Treasury shall establish and maintain a Social Security Part A Account, a Social Security Part B Account, and a Self-Liquidating Social Security Transition Fund Account.

(c)

Credits and charges to the Social Security Part A Account

(1)

For each fiscal year, the Social Security Part A Account shall be credited with the sum of—

(A)

all receipts during the year by the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund under section 201 (including amounts received as interest on notes and obligations purchased by the Trust Funds under section 201(d) of such Act, and excluding amounts received in redemption of such notes and obligations and amounts received by either such Trust Fund as transfers from the other such Trust Fund), and

(B)

all receipts during the year by the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund under section 121(e) of the Social Security Amendments of 1983 (relating to appropriation of amounts equivalent to taxes on social security benefits) (42 U.S.C. 401 note).

(2)

For each fiscal year, the Social Security Part A Account shall be charged with the sum of—

(A)

all benefits paid during the year from the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund under part A of title II of the Social Security Act,

(B)

all redirected social security contributions transferred during the year to the Social Security Personal Savings Fund under section 252(b),

(C)

all other expenditures during the year from the Trust Funds under part A of title II (excluding amounts expended as transfers by either such Trust Fund to the other such Trust Fund and amounts paid for the purchase of notes and obligations under section 201(d)), and

(D)

all transfers from the Federal Old-Age and Survivors Insurance Trust Fund to the Self-Liquidating Social Security Transition Fund under section 262(d).

(d)

Charges and credits to the Social Security Part B Account

(1)

For each fiscal year, the Social Security Part B Account shall be credited with—

(A)

all redirected social security contributions transferred during the year to the Personal Social Security Savings Fund under section 252(b) of the Social Security Act, and

(B)

any net increase in the Tier I Investment Fund attributable to investment for the fiscal year, any net increase in the Tier II Investment Fund attributable to investment for the fiscal year, and the total amount of any net increases in Tier III Investment Options attributable to investment for the fiscal year.

(2)

For each fiscal year, the Social Security Part B Account shall be charged with—

(A)

all administrative costs incurred for the fiscal year with respect to the Tier I Investment Fund, the Tier II Investment Fund, and the Tier III Investment Options,

(B)

any net decrease in the Tier I Investment Fund attributable to investment for the fiscal year, any net decrease in the Tier II Investment Fund attributable to investment for the fiscal year, and the total amount of any net decreases in Tier III Investment Options attributable to investment for the fiscal year, and

(C)

annuity payments made during the year under section 258 from the Annuity Reserve Account in the Savings Fund.

(e)

Charges and credits to the Self-Liquidating Social Security Transition Fund Account

(1)

For each fiscal year, the Self-Liquidating Social Security Transition Account shall be credited with—

(A)

all transfers to the Transition Fund from the Federal Old-Age and Survivors Insurance Trust Fund under section 262(b), and

(B)

all amounts expended during the fiscal year from the Trust Funds in the redemption under section 262(e) of obligations issued by the Transition fund under section 262(c).

(2)

For each fiscal year, the Self-Liquidating Social Security Transition Fund Account shall be charged with the total amount of obligations issued during the fiscal year by the Transition Fund under section 262(c)

.

109.

Reduction of FICA rates resulting from Personal Social Security Savings Program

(a)

Employee contribution

Section 3101 of the Internal Revenue Code of 1986 (relating to tax on employees) is amended by adding at the end the following new subsection:

(d)

Reduction in old-age, survivors, and disability insurance tax rate

(1)

In general

In any year which follows a reduction year and each year thereafter, the rate of tax imposed under subsection (a) shall be reduced by the reduction percentage.

(2)

Reduction year

For purposes of this section—

(A)

In general

The term reduction year means any year after the transition year in which the OASDI rate ratio exceeds 125 percent.

(B)

Transition year

The term transition year means the first full calendar year following the termination year (as defined in section 201(p)(3) of the Social Security Act).

(3)

Reduction percentage

For purposes of this section, the term reduction percentage means the excess of—

(A)

the rate in effect under subsection (a) for the reduction year, over

(B)

the rate (rounded up to the nearest one tenth of a percent) under which the OASDI rate ratio for the reduction year would have been 125 percent if—

(i)

such rate had been applicable under subsection (a) and section 3111(a) during such year, and

(ii)

the rate under section 1401(a) during such year were twice such rate.

(4)

OASDI rate ratio

The term OASDI rate ratio means, with respect to any calendar year, the ratio—

(A)

the numerator of which is the combined balance in the Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund, as of the last day of such calendar year, and

(B)

the denominator of which is the amount paid from such Trust Funds during such calendar year for all purposes authorized by section 201 of the Social Security Act (excluding any transfer payments between such Trust Funds and reducing the amount of any transfer to the Railroad Retirement Account by the amount of any transfers into either such Trust Fund from such Account).

(5)

Limitation on reduction

Paragraph (1) shall not apply to any reduction to the extent that such reduction would cause the rate of tax imposed under subsection (a) to be less than 4.95 percent.

.

(b)

Employer contribution

Section 3111 of the Internal Revenue Code of 1986 (relating to tax on employers) is amended by adding at the end the following new subsection:

(d)

Reduction in old-age, survivors, and disability insurance tax rate

(1)

In general

In any year which follows a reduction year and each year thereafter, the rate of tax imposed under subsection (a) shall be reduced by the reduction percentage.

(2)

Reduction year; reduction percentage

For purposes of this section, the terms reduction year and reduction percentage have the meanings given such terms by section 3101(d).

(3)

Limitation on reduction

Paragraph (1) shall not apply to any reduction to the extent that such reduction would cause the rate of tax imposed under subsection (a) to be less than 4.95 percent.

.

(c)

Self-Employment Contribution

Section 1401 of the Internal Revenue Code of 1986 (relating to tax on self-employment income) is amended by adding at the end the following new subsection:

(d)

Reduction in old-age, survivors, and disability insurance tax rate

(1)

In general

In any year which follows a reduction year and each year thereafter, the rate of tax imposed under subsection (a) shall be reduced by the reduction percentage.

(2)

Reduction year; reduction percentage

For purposes of this section, the terms reduction year and reduction percentage have the meanings given such terms by section 3101(d).

(3)

Limitation on reduction

Paragraph (1) shall not apply to any reduction to the extent that such reduction would cause the rate of tax imposed under subsection (a) to be less than 9.9 percent.

.

II

Putting a lid on the Federal budget

A

Spending safeguards on the growth of entitlements and mandatories

201.

Spending caps on growth of entitlements and mandatories

(a)

Control of entitlements and mandatories

The Balanced Budget and Emergency Deficit Control Act of 1985 is amended by adding after section 252 the following new section:

252A.

Enforcing controls on direct spending

(a)

Cap on growth of entitlements

Effective for fiscal year 2007 and for each ensuing fiscal year, the total level of direct spending for all direct spending programs, projects, and activities (excluding social security) for any such fiscal year shall not exceed the total level of spending for all such programs, projects, and activities for the previous fiscal year after the direct spending for each such program, project, or activity is increased by the higher of the change in the Consumer Price Index for All Urban Consumers or the inflator (if any) applicable to that program, project, or activity and the growth in eligible population for such, project, or activity.

(b)

Sequestration

Within 15 days after Congress adjourns to end a session (other than of the second session of the One Hundred Ninth Congress), and on the same day as a sequestration (if any) under section 251, there shall be a sequestration to reduce the amount of direct spending for the fiscal year beginning in the year the Congress adjourns by any amount necessary to reduce such spending to the level set forth in subsection (a) unless that amount is less than $250,000,000.

(c)

Uniform reductions; limitations

The amount required to be sequestered for the fiscal year under subsection (a) shall be obtained from nonexempt direct spending accounts by actions taken in the following order:

(1)

First

The reductions in the programs specified in section 255(a) (National Wool Act and special milk), section 255(b) (student loans), and section 255(c) (foster care and adoption assistance) shall be made.

(2)

Second

Any additional reductions that may be required shall be achieved by reducing each remaining nonexempt direct spending account by the uniform percentage necessary to achieve those additional reductions, except that—

(A)

the low-income programs specified in section 255(d) shall not be reduced by more than 2 percent;

(B)

the retirement and veterans benefits specified in sections 255(f), (g), and (h) shall not be reduced by more than 2 percent in the manner specified in that section; and

(C)

the medicare programs shall not be reduced by more than 2 percent in the manner specified in section 255(i).

The limitations set forth in subparagraphs (A), (B), and (C) shall be applied iteratively, and after each iteration the uniform percentage applicable to all other programs under this paragraph shall be increased (if necessary) to a level sufficient to achieve the reductions required by this paragraph.
(d)

Exclusion of medicare prescription drug program until fully operational

For purposes of this section with respect to the limitation under subsection (a) for a fiscal year before fiscal year 2008, direct spending programs and direct spending shall not be construed to include part D of title XVIII of the Social Security Act (or spending under part C of such title that is attributable to such part D).

.

(b)

Table of contents amendment

The table of contents set forth in 250(c) of the Balanced Budget and Emergency Deficit Control Act of 1985 is amended by adding after the item relating to section 252 the following new item:

Sec. 252A. Enforcing controls on direct spending.

.

202.

Exempt programs and activities

Section 255 of the Balanced Budget and Emergency Deficit Control Act of 1985 is amended to read as follows:

255.

Exempt programs and activities

(a)

Social security benefits; tier i railroad retirement benefits; and certain medicare benefits

(1)

Benefits payable under the old-age, survivors, and disability insurance program established under title II of the Social Security Act, and benefits payable under section 3(a), 3(f)(3), 4(a), or 4(f) of the Railroad Retirement Act of 1974, shall be exempt from reduction under any order issued under this part.

(2)

Payments made under part A of title XVIII (relating to part A medicare hospital insurance benefits) of the Social Security Act and payments made under part C of such title (relating to the Medicare Advantage program) insofar as they are attributable to part A of such title shall be exempt from reduction under any order issued under this part.

(b)

Descriptions and lists

The following budget accounts or activities shall be exempt from sequestration:

(1)

net interest;

(2)

all payments to trust funds from excise taxes or other receipts or collections properly creditable to those trust funds;

(3)

all payments from one Federal direct spending budget account to another Federal budget account; and all intragovernmental funds including those from which funding is derived primarily from other Government accounts, except to the extent that such funds are augmented by direct appropriations for the fiscal year for which the order is in effect;

(4)

activities resulting from private donations, bequests, or voluntary contributions to the Government;

(5)

payments from any revolving fund or trust-revolving fund (or similar activity) that provides deposit insurance or other Government insurance, Government guarantees, or any other form of contingent liability, to the extent those payments result from contractual or other legally binding commitments of the Government at the time of any sequestration;

(6)

credit liquidating and financing accounts;

(7)

the following accounts, which largely fulfill requirements of the Constitution or otherwise make payments to which the Government is committed:

  • Administration of Territories, Northern Mariana Islands Covenant grants (14–0412–0–1–806);
  • Armed Forces Retirement Home Trust Fund, payment of claims (84–8930–0–7–705);
  • Bureau of Indian Affairs, miscellaneous payments to Indians (14–2303–0–1–452);
  • Bureau of Indian Affairs, miscellaneous trust funds, tribal trust funds (14–9973–0–7–999);
  • Claims, defense;
  • Claims, judgments, and relief act (20–1895–0–1–806);
  • Compact of Free Association, economic assistance pursuant to Public Law 99–658 (14–0415–0–1–806);
  • Compensation of the President (11–0001–0–1–802);
  • Customs Service, miscellaneous permanent appropriations (20–9992–0–2–852);
  • Eastern Indian land claims settlement fund (14–2202–0–1–806);
  • Farm Credit Administration, Limitation on Administration Expenses (78–4131–0–3–351);
  • Farm Credit System Financial Assistance Corporation, interest payments (20–1850–0–1–351);
  • Internal Revenue collections of Puerto Rico (20–5737–0–2–852);
  • Panama Canal Commission, operating expenses and capital outlay (95–5190–0–2–403);
  • Payments of Vietnam and USS Pueblo prisoner-of-war claims (15–0104–0–1–153);
  • Payments to copyright owners (03–5175–0–2–376);
  • Payments to health care trust funds (75–0580–0–1–571);
  • Payments to social security trust funds (75–0404–0–1–651);
  • Payments to the United States territories, fiscal assistance (14–0418–0–1–801);
  • Payments to widows and heirs of deceased Members of Congress (00–0215–0–1–801);
  • Pension Benefit Guaranty Corporation Fund (16–4204–0–3–601);
  • Salaries of Article III judges;
  • Washington Metropolitan Area Transit Authority, interest payments (46–0300–0–1–401);
(8)

the following noncredit special, revolving, or trust-revolving funds:

  • Coinage profit fund (20–5811–0–2–803);
  • Comptroller of the Currency;
  • Director of the Office of Thrift Supervision;
  • Exchange Stabilization Fund (20–4444–0–3–155);
  • Federal Housing Finance Board;
  • Foreign Military Sales trust fund (11–82232–0–7–155);
  • National Credit Union Administration, central liquidating facility (25–4470–0–3–373);
  • National Credit Union Administration, credit union insurance fund (25–4468–0–3–373);
  • National Credit Union Administration operating fund (25–4056–0–3–373); and
  • Resolution Trust Corporation Revolving Fund (22–4055–0–3–373);
(9)

Thrift Savings Fund;

(10)

appropriations for the District of Columbia to the extent they are appropriations of locally raised funds;

(11)
(A)

any amount paid as regular unemployment compensation by a State from its account in the Unemployment Trust Fund (established by section 904(a) of the Social Security Act);

(B)

any advance made to a State from the Federal unemployment account (established by section 904(g) of such Act) under title XII of such Act and any advance appropriated to the Federal unemployment account pursuant to section 1203 of such Act; and

(C)

any payment made from the Federal Employees Compensation Account (as established under section 909 of such Act) for the purpose of carrying out chapter 85 of title 5, United States Code, and funds appropriated or transferred to or otherwise deposited in such Account; and

(12)
(A)

FDIC, Bank Insurance Fund (51–4064–0–3–373);

(B)

FDIC, FSLIC Resolution Fund (51–4065–0–3–373); and

(C)

FDIC, Savings Association Insurance Fund (51–4066–0–3–373).

(c)

Federal retirement and disability accounts

The following Federal retirement and disability accounts shall be exempt from reduction under any order issued under this part:

  • Civil service retirement and disability fund (24–8135–0–7–602).
  • Black Lung Disability Trust Fund (20–8144–0–7–601).
  • Foreign Service Retirement and Disability Fund (19–8186–0–7–602).
  • District of Columbia Judicial Retirement and Survivors Annuity Fund (20–8212–0–7–602).
  • Judicial Survivors’ Annuities Fund (10–8110–0–7–602).
  • Payments to the Railroad Retirement Accounts (60–0113–0–1–601).
  • Tax Court Judges Survivors Annuity Fund (23–8115–0–7–602).
  • Employees Life Insurance Fund (24–8424–0–8–602).
(d)

Federal administrative expenses

(1)

Notwithstanding any provision of law other than paragraph (3), administrative expenses incurred by the departments and agencies, including independent agencies, of the Government in connection with any program, project, activity, or account shall be subject to reduction pursuant to any sequestration order, without regard to any exemption, exception, limitation, or special rule otherwise applicable with respect to such program, project, activity, or account, and regardless of whether the program, project, activity, or account is self-supporting and does not receive appropriations.

(2)

Payments made by the Government to reimburse or match administrative costs incurred by a State or political subdivision under or in connection with any program, project, activity, or account shall not be considered administrative expenses of the Government for purposes of this section, and shall be subject to sequestration to the extent (and only to the extent) that other payments made by the Government under or in connection with that program, project, activity, or account are subject to that reduction or sequestration; except that Federal payments made to a State as reimbursement of administrative costs incurred by that State under or in connection with the unemployment compensation programs specified in subsection (a)(11) shall be subject to reduction or sequestration under this part notwithstanding the exemption otherwise granted to such programs under that subsection.

(3)

Notwithstanding any other provision of law, the administrative expenses of the following programs shall be exempt from sequestration:

(A)

Comptroller of the Currency.

(B)

Federal Deposit Insurance Corporation.

(C)

Office of Thrift Supervision.

(D)

National Credit Union Administration.

(E)

National Credit Union Administration, central liquidity facility.

(F)

Federal Retirement Thrift Investment Board.

(G)

Resolution Funding Corporation.

(H)

Resolution Trust Corporation.

(I)

Board of Governors of the Federal Reserve System.

(e)

Veterans’ programs

The following programs shall be exempt from reduction under any order issued under this part:

  • General Post Funds (36–8180–0–7–705).
  • Veterans Insurance and Indemnities (36–0120–0–1–701).
  • Service-Disabled Veterans Insurance Funds (36–4012–0–3–701).
  • Veterans Reopened Insurance Fund (36–4010–0–3–701).
  • Servicemembers’ Group Life Insurance Fund (36–4009–0–3–701).
  • Post-Vietnam Era Veterans Education Account (36–8133–0–7–702).
  • National Service Life Insurance Fund (36–8132–0–7–701).
  • United States Government Life Insurance Fund (36–8150–0–7–701).
  • Veterans Special Life Insurance Fund (36–8455–0–8–701).
(f)

Optional exemption of defense and homeland security accounts

(1)

In general

The President may, with respect to any defense or homeland security account, exempt that account from sequestration or provide for a lower uniform percentage reduction than would otherwise apply.

(2)

Limitation

The President may not use the authority provided by paragraph (1) unless the President notifies the Congress of the manner in which such authority will be exercised on or before the date specified in section 254(a) for the budget year.

.

203.

Exceptions, limitations, and special rules

(a)

In general

Section 256 of the Balanced Budget and Emergency Deficit Control Act of 1985 is amended to read as follows:

256.

Exceptions, limitations, and special rules

(a)

National Wool Act and the special milk program

Automatic spending increases are increases in outlays due to changes in indexes in the following programs:

(1)

National Wool Act; and

(2)

Special milk program.

In those programs all amounts other than the automatic spending increases shall be exempt from reduction under any sequestration order.
(b)

Student loans

For all student loans under part B or D of title IV of the Higher Education Act of 1965 made during the period when a sequestration order under section 254 is in effect as required by section 252 or 253, origination fees under sections 438(c)(2) and 455(c) of that Act shall each be increased by 0.50 percentage point.

(c)

Foster care and adoption assistance programs

Any sequestration order shall make the reduction otherwise required under the foster care and adoption assistance programs (established by part E of title IV of the Social Security Act) only with respect to payments and expenditures made by States in which increases in foster care maintenance payment rates or adoption assistance payment rates (or both) are to take effect during the fiscal year involved, and only to the extent that the required reduction can be accomplished by applying a uniform percentage reduction to the Federal matching payments that each such State would otherwise receive under section 474 of that Act (for such fiscal year) for that portion of the State’s payments attributable to the increases taking effect during that year. No State’s matching payments from the Government for foster care maintenance payments or for adoption assistance maintenance payments may be reduced by a percentage exceeding the applicable domestic sequestration percentage. No State may, after the date of the enactment of this Act, make any change in the timetable for making payments under a State plan approved under part E of title IV of the Social Security Act which has the effect of changing the fiscal year in which expenditures under such part are made.

(d)

Low-Income programs

(1)

Benefit payments or payments to States or other entities for the programs listed in paragraph (2) shall not be reduced by more than 2 percent under any sequestration order. When reduced under an end-of-session sequestration order, those benefit reductions shall occur starting with the payment made at the start of January. When reduced under a within-session sequestration order, those benefit reductions shall occur starting with the next periodic payment.

(2)

The programs referred to in paragraph (1) are the following:

  • Child Nutrition (12–3539–0–1–605).
  • Food Stamp Programs (12–3505–0–1–605).
  • Grants to States for Medicaid (75–0512–0–1–551).
  • State Children’s Health Insurance Fund (75–0515–0–1–551).
  • Supplemental Security Income Program (75–0406–0–1–609).
  • Temporary Assistance for Needy Families (75–1552–0–1–609).
  • Special supplemental nutrition program for women, infants, and children (WIC) (12–3510–0–1–605).
(e)

Veterans’ medical care

The maximum permissible reduction in budget authority for Veterans’ medical care (36–0160–0–1–703) for any fiscal year, pursuant to an order issued under section 254, shall be 2 percent.

(f)

Federal retirement programs

(1)

For each of the programs listed in paragraph (2) and except as provided in paragraph (3), monthly (or other periodic) benefit payments shall be reduced by the uniform percentage applicable to direct spending sequestrations for such programs, which shall in no case exceed 2 percent under any sequestration order. When reduced under an end-of-session sequestration order, those benefit reductions shall occur starting with the payment made at the start of January or 7 weeks after the order is issued, whichever is later. When reduced under a within-session sequestration order, those benefit reductions shall occur starting with the next periodic payment.

(2)

The programs subject to paragraph (1) are:

  • Central Intelligence Agency Retirement and Disability Fund (56–3400–0–1–054).
  • Comptrollers General Retirement System (05–0107–0–1–801)Payments to the Foreign Service Retirement and Disability Fund (72–1036–0–1–153).
  • Judicial Officer’ Retirement Fund (10–8122–0–7–602).
  • Claims Judges’ Retirement Fund (10–8124–0–7–602).
  • Pensions for former Presidents (47–0105–0–1–802).
  • National Oceanic and Atmospheric Administration Retirement (13–1450–0–1–306).
  • Railroad Industry Pension Fund (60–8011–0–7–601).
  • Retired pay, Coast Guard (70–0602–0–1–403).
  • Retirement pay and medical benefits for commissioned officers, Public Health Service (75–0379–0–1–551).
  • Payments to Civil Service Retirement and Disability Fund (24–0200–0–1–805).
  • Payments to the Foreign Service Retirement and Disability Fund (72–1036–0–1–153).
  • Payments to Judiciary Trust Funds (10–0941–0–1–752).
(g)

Veterans programs

To achieve the total percentage reduction required by any order issued under this part, the percentage reduction that shall apply to payments under the following programs shall in no event exceed 2 percent:

  • Canteen Service Revolving Fund (36–4014–0–3–705).
  • Medical Center Research Organizations (36–4026–0–3–703).
  • Disability Compensation Benefits (36–0102–0–1–701).
  • Education Benefits (36–0137–0–1–702).
  • Vocational Rehabilitation and Employment Benefits (36–0135–0–1–702).
  • Pensions Benefits (36–0154–0–1–701).
  • Burial Benefits (36–0139–0–1–701).
  • Guaranteed Transitional Housing Loans For Homeless Veterans Program Account (36–1119–0–1–704).
  • Housing Direct Loan Financing Account (36–4127–0–1–704).
  • Housing Guaranteed Loan Financing Account (36–4129–0–3–704)
  • Vocational Rehabilitation and Education Direct Loan Financing Account (36–4259–0–3–702).
(h)

Military health and retirement

To achieve the total percentage reduction in military retirement required by any order issued under this part, the percentage reduction that shall apply to payments under the Military retirement fund (97–8097–0–7–602), payments to the military retirement fund (97–0040–0–1–054), and the Defense Health Program (97–0130–0–1–051) shall in no event exceed 2 percent.

(i)

Medicare program

(1)

Calculation of reduction in individual payment amounts

To achieve the total percentage reduction in those programs required by any order issued under this part, the percentage reduction that shall apply to payments under the health insurance programs under title XVIII of the Social Security Act (other than payments described in section 255(a)(2)) that are subject to such order for services furnished after any sequestration order is issued shall be such that the reduction made in payments under that order shall achieve the required total percentage reduction in those payments for that fiscal year as determined on a 12-month basis. However, the percentage reduction under any such program shall in no case exceed 2 percent under any sequestration order.

(2)

Timing of application of reductions

If a reduction is made under paragraph (1) in payment amounts pursuant to a sequestration order, the reduction shall be applied to payment for services furnished after the effective date of the order.

(3)

No increase in beneficiary charges in assignment-related cases

If a reduction in payment amounts is made under paragraph (1) for services for which payment under part B of title XVIII of the Social Security Act is made on the basis of an assignment described in section 1842(b)(3)(B)(ii), in accordance with section 1842(b)(6)(B), or under the procedure described in section 1870(f)(1) of such Act, the person furnishing the services shall be considered to have accepted payment of the reasonable charge for the services, less any reduction in payment amount made pursuant to a sequestration order, as payment in full.

(4)

Application to parts c and d

The reductions otherwise required under parts C and D of title XVIII of the Social Security Act with respect to a fiscal year shall be applied to the calendar year that begins after the end of the fiscal year to which the applicable sequestration order applies.

(j)

Federal pay

(1)

In general

For purposes of any order issued under section 254, new budget authority to pay Federal personnel shall be reduced by the applicable uniform percentage, but no sequestration order may reduce or have the effect of reducing the rate of pay to which any individual is entitled under any statutory pay system (as increased by any amount payable under section 5304 of title 5, United States Code, or section 302 of the Federal Employees Pay Comparability Act of 1990) or the rate of any element of military pay to which any individual is entitled under title 37, United States Code, or any increase in rates of pay which is scheduled to take effect under section 5303 of title 5, United States Code, section 1009 of title 37, United States Code, or any other provision of law.

(2)

Definitions

For purposes of this subsection:

(A)

The term statutory pay system shall have the meaning given that term in section 5302(1) of title 5, United States Code.

(B)

The term elements of military pay means—

(i)

the elements of compensation of members of the uniformed services specified in section 1009 of title 37, United States Code,

(ii)

allowances provided members of the uniformed services under sections 403a and 405 of such title, and

(iii)

cadet pay and midshipman pay under section 203(c) of such title.

(C)

The term uniformed services shall have the meaning given that term in section 101(3) of title 37, United States Code.

(k)

Child support enforcement program

Any sequestration order shall accomplish the full amount of any required reduction in expenditures under sections 455 and 458 of the Social Security Act by reducing the Federal matching rate for State administrative costs under such program, as specified (for the fiscal year involved) in section 455(a) of such Act, to the extent necessary to reduce such expenditures by that amount.

(l)

Extended unemployment compensation

(1)

A State may reduce each weekly benefit payment made under the Federal-State Extended Unemployment Compensation Act of 1970 for any week of unemployment occurring during any period with respect to which payments are reduced under an order issued under this title by a percentage not to exceed the percentage by which the Federal payment to the State under section 204 of such Act is to be reduced for such week as a result of such order.

(2)

A reduction by a State in accordance with subparagraph (A) shall not be considered as a failure to fulfill the requirements of section 3304(a)(11) of the Internal Revenue Code of 1954.

(m)

Commodity Credit Corporation

(1)

Powers and authorities of the Commodity Credit Corporation

This title shall not restrict the Commodity Credit Corporation in the discharge of its authority and responsibility as a corporation to buy and sell commodities in world trade, to use the proceeds as a revolving fund to meet other obligations and otherwise operate as a corporation, the purpose for which it was created.

(2)

Reduction in payments made under contracts

(A)

Payments and loan eligibility under any contract entered into with a person by the Commodity Credit Corporation prior to the time any sequestration order has been issued shall not be reduced by an order subsequently issued. Subject to subparagraph (B), after any sequestration order is issued for a fiscal year, any cash payments made by the Commodity Credit Corporation—

(i)

under the terms of any one-year contract entered into in or after such fiscal year and after the issuance of the order; and

(ii)

out of an entitlement account, to any person (including any producer, lender, or guarantee entity) shall be subject to reduction under the order.

(B)

Each contract entered into with producers or producer cooperatives with respect to a particular crop of a commodity and subject to reduction under subparagraph (A) shall be reduced in accordance with the same terms and conditions. If some, but not all, contracts applicable to a crop of a commodity have been entered into prior to the issuance of any sequestration order, the order shall provide that the necessary reduction in payments under contracts applicable to the commodity be uniformly applied to all contracts for succeeding crops of the commodity, under the authority provided in paragraph (3).

(3)

Delayed reduction in outlays permissible

Notwithstanding any other provision of this title, if any sequestration order is issued with respect to a fiscal year, any reduction under the order applicable to contracts described in paragraph (2) may provide for reductions in outlays for the account involved to occur in the fiscal years following the fiscal year to which the order applies.

(4)

Uniform percentage rate of reduction and other limitations

All reductions described in paragraph (2) that are required to be made in connection with any sequestration order with respect to a fiscal year—

(A)

shall be made so as to ensure that outlays for each program, project, activity, or account involved are reduced by a percentage rate that is uniform for all such programs, projects, activities, and accounts, and may not be made so as to achieve a percentage rate of reduction in any such item exceeding the rate specified in the order; and

(B)

with respect to commodity price support and income protection programs, shall be made in such manner and under such procedures as will attempt to ensure that—

(i)

uncertainty as to the scope of benefits under any such program is minimized;

(ii)

any instability in market prices for agricultural commodities resulting from the reduction is minimized; and

(iii)

normal production and marketing relationships among agricultural commodities (including both contract and non-contract commodities) are not distorted.

In meeting the criterion set out in clause (iii) of subparagraph (B) of the preceding sentence, the President shall take into consideration that reductions under an order may apply to programs for two or more agricultural commodities that use the same type of production or marketing resources or that are alternative commodities among which a producer could choose in making annual production decisions.
(5)

Certain authority not to be limited

Nothing in this title shall limit or reduce in any way any appropriation that provides the Commodity Credit Corporation with funds to cover the Corporation’s net realized losses.

(n)

Postal Service Fund

Notwithstanding any other provision of law, any sequestration of the Postal Service Fund shall be accomplished by a payment from that Fund to the General Fund of the Treasury, and the Postmaster General of the United States shall make the full amount of that payment during the fiscal year to which the presidential sequestration order applies.

(o)

Effects of sequestration

The effects of sequestration shall be as follows:

(1)

Budgetary resources sequestered from any account other than an entitlement trust, special, or revolving fund account shall revert to the Treasury and be permanently canceled.

(2)

Except as otherwise provided, the same percentage sequestration shall apply to all programs, projects, and activities within a budget account (with programs, projects, and activities as delineated in the appropriation Act or accompanying report for the relevant fiscal year covering that account, or for accounts not included in appropriation Acts, as delineated in the most recently submitted President’s budget).

(3)

Administrative regulations or similar actions implementing a sequestration shall be made within 120 days of the sequestration order. To the extent that formula allocations differ at different levels of budgetary resources within an account, program, project, or activity, the sequestration shall be interpreted as producing a lower total appropriation, with that lower appropriation being obligated as though it had been the pre-sequestration appropriation and no sequestration had occurred.

(4)

Except as otherwise provided, obligations in sequestered direct spending accounts shall be reduced in the fiscal year in which a sequestration occurs and in all succeeding fiscal years.

(5)

If an automatic spending increase is sequestered, the increase (in the applicable index) that was disregarded as a result of that sequestration shall not be taken into account in any subsequent fiscal year.

(6)

Except as otherwise provided, sequestration in accounts for which obligations are indefinite shall be taken in a manner to ensure that obligations in the fiscal year of a sequestration and succeeding fiscal years are reduced, from the level that would actually have occurred, by the applicable sequestration percentage.

.

(b)

Conforming amendment

The table of contents set forth in 250(c) of the Balanced Budget and Emergency Deficit Control Act of 1985 is amended by amending the item relating to section 256 to read as follows:

Sec. 256. Exceptions, limitations, and special rules.

.

204.

Point of order

(a)

Entitlement point of order

Section 312 of the Congressional Budget Act of 1974 is amended by adding at the end the following new subsection:

(g)

Entitlement point of order

It shall not be in order in the House of Representatives or the Senate to consider any bill, joint resolution, amendment, or conference report that—

(1)

increases aggregate level of direct spending for any ensuing fiscal year or

(2)

includes any provision that has the effect of modifying the application of section 252A of the Balanced Budget and Emergency Deficit Control Act of 1985 to any entitlement program subject to sequestration or exempt from sequestration under such Act.

.

205.

Technical and conforming amendments

The Balanced Budget and Emergency Deficit Control Act of 1985 is amended as follows:

(1)

Section 251(a)(1) is amended by inserting , section 252A, after section 252.

(2)

Section 254(c)(4)(B) is amended by inserting or section 252A after section 252.

(3)

Section 254(c) is amended by redesignating paragraph (5) as paragraph (6) and by inserting after paragraph (4) the following new paragraph:

(5)

Direct spending control sequestration reports

The preview reports shall set forth, for the current year and the budget year, estimates for each of the following:

(A)

The total level of direct spending for all programs, projects, and activities (excluding social security).

(B)

The sequestration percentage or (if the required sequestration percentage is greater than the maximum allowable percentage for medicare) percentages necessary to comply with section 252A.

.

(4)

Section 254(f) is amended by redesignating paragraphs (4) and (5) as paragraphs (5) and (6) and by inserting after paragraph (3) the following new paragraph:

(4)

Direct spending control sequestration reports

The final reports shall contain all the information required in the direct spending control sequestration preview reports. In addition, these reports shall contain, for the budget year, for each account to be sequestered, estimates of the baseline level of sequesterable budgetary resources and resulting outlays and the amount of budgetary resources to be sequestered and resulting outlay reductions. The reports shall also contain estimates of the effects on outlays of the sequestration in each outyear for direct spending programs.

.

(5)

Section 258C(a)(1) is amended by inserting , 252A, after section 252.

B

Discretionary spending limits

211.

Enforcing discretionary spending limits

(a)

Discretionary spending limits

Sections 251(b) and (c) of the Balanced Budget and Emergency Deficit Control of Act of 1985 are amended to read as follows:

(b)

Discretionary spending limit

As used in this part, the term discretionary spending limit means—

(1)

with respect to fiscal year 2007—

(A)

$861,577,682,000 in new budget authority of which no more than $412,947,276,000 shall be for functions other than National Defense (050); and

(B)

$_____ in outlays of which no more than $_____ shall be for functions other than National Defense (050);

(2)

with respect to fiscal year 2008—

(A)

$880,532,400,000 in new budget authority of which no more than $422,032,100,000 shall be for functions other than National Defense (050); and

(B)

$_____ in outlays of which no more than $_____ shall be for functions other than National Defense (050);

(3)

with respect to fiscal year 2009—

(A)

$899,904,100,000 in new budget authority of which no more than $431,316,800,000 shall be for functions other than National Defense (050); and

(B)

$_____ in outlays of which no more than $_____ shall be for functions other than National Defense (050);

(4)

with respect to fiscal year 2010—

(A)

$919,702,000,000 in new budget authority of which no more than $440,805,800,000 shall be for functions other than National Defense (050); and

(B)

$_____ in outlays of which no more than $_____ shall be for functions other than National Defense (050);

(5)

with respect to fiscal year 2011—

(A)

$939,935,400,000 in new budget authority of which no more than $450,503,500,000 shall be for functions other than National Defense (050); and

(B)

$_____ in outlays of which no more than $_____ shall be for functions other than National Defense (050);

(6)

with respect to fiscal year 2012—

(A)

$960,614,000,000 in new budget authority of which no more than $460,414,600,000 shall be for functions other than National Defense (050); and

(B)

$_____ in outlays of which no more than $_____ shall be for functions other than National Defense (050);

(7)

with respect to fiscal year 2013—

(A)

$981,747,500,000 in new budget authority of which no more than $470,543,700,000 shall be for functions other than National Defense (050); and

(B)

$_____ in outlays of which no more than $_____ shall be for functions other than National Defense (050);

(8)

with respect to fiscal year 2014—

(A)

$1,003,346,000,000 in new budget authority of which no more than $480,895,700,000 shall be for functions other than National Defense (050); and

(B)

$_____ in outlays of which no more than $_____ shall be for functions other than National Defense (050); and

(9)

with respect to fiscal year 2015—

(A)

$1,025,419,600,000 in new budget authority of which no more than $491,475,400,000 shall be for functions other than National Defense (050); and

(B)

$_____ in outlays of which no more than $_____ shall be for functions other than National Defense (050).

.

(b)

Discretionary spending limit point of order

Section 312 of the Congressional Budget Act of 1974 (as amended by section 204) is further amended by adding at the end the following new subsection:

(h)

Discretionary spending limit point of order

It shall not be in order in the House of Representatives or the Senate to consider any bill, joint resolution, amendment, or conference report that—

(1)

increases the discretionary spending limits for any ensuing fiscal year after the budget year; or

(2)

would cause the discretionary spending limits for the budget year to be breached.

.

(c)

Advance appropriation point of order

Section 312 of the Congressional Budget Act of 1974 (as amended by subsection (b)) is further amended by adding at the end the following new subsection:

(i)

Advance appropriation point of order

It shall not be in order in the House of Representatives or the Senate to consider any appropriation bill or joint resolution, or amendment thereto or conference report thereon, that provides advance discretionary new budget authority that first becomes available for any fiscal year after the budget year at an amount for any program, project, or activity above the amount of appropriations for fiscal year 2006 for such program, project, or activity.

.

(d)

Extension of Gramm-Rudman

Section 275(b) of the Balanced Budget and Emergency Deficit Control of Act of 1985 is amended by striking 2002 and inserting 2015 and by striking 2006 and inserting 2019.